Gasoline futures have plunged more than 10% this week since setting a record high of $1.7491 a gallon Monday, prompting some analysts to say futures prices may have peaked for the year.
Gasoline futures tend to rally early in the year as traders buy on fear of supply shortages during the high-demand driving season. The peak for the preseason rally usually comes sometime in April or May.
In 17 of the last 21 years, gasoline futures have set a high for the year early in the season before sliding through most of the summer. Last year, for example, prices peaked at $1.47 a gallon May 20 and fell to $1.12 a gallon on June 30. If history is any guide, that may happen again this year -- if it hasn't already.
"It's very rare for gasoline prices to exceed the preseason-rally peak" in the rest of the year, said Walter Zimmerman, technical strategist for brokerage United Energy in New York. "The fear factor that drives the preseason rally takes the price far above what any ensuing demand rally can achieve."
Gasoline futures continued their slide yesterday on the New York Mercantile Exchange, with the May contract plunging 9.12 cents to close at $1.5680 a gallon as supply worries eased. Traders reacted optimistically to reports that U.S. refiners are ramping up production.
The selloff weighed on Nymex crude-oil futures, with the May crude contract falling $1.74 to close at $54.11 a gallon.
The price drop that typically follows a preseason peak could be substantial. In the last 20 years, the decline has averaged 25%, Mr. Zimmerman said.
Tim Evans, senior energy analyst at IFR Markets in New York, said gasoline futures could well return to the December lows of $1.18 to $1.20 a gallon. Pump prices could fall back to the $1.75- a-gallon area in a parallel move, he said, countering the federal Energy Information Administration's forecast Thursday that retail gasoline prices will peak in May at a record high of $2.35 a gallon.
"I'd not be surprised if we eventually see an overreaction on the downside," Mr. Evans said.
In other commodity markets:
NATURAL GAS: Futures at the Nymex dropped sharply as weekly natural-gas storage data were seen as bearish and as gasoline futures sold off sharply, souring sentiment on the energy complex overall. Natural-gas futures dropped after the weekly storage report that showed underground storage growing in the final week of the heating season vs. consensus of a drop. May natural-gas futures fell 19.2 cents to $7.366 a million British thermal units.
COTTON: Prices at the New York Board of Trade rose, supported by speculative buying and the buying back of previously sold positions. Cotton did come off its high when traders began to roll positions from the May to the July contract ahead of expiration. May cotton rose 0.34 cent to 52.22 cents a pound.