Gasoline Futures -- Flash Crash du Jour
The "flash crash" phenomenon seems to be going around.
Last week marked the anniversary of the first flash crash -- May 6, 2010. That was the day some high frequency trading (HFT) algorithms went haywire, sending a slew of large-cap stocks like Procter & Gamble (PG:NYSE) down 30% in the space of minutes.
This year, crude oil experienced its own flash crash on Thursday, May 5, as the futures dropped $10 per barrel in a single day. The move crushed a number of large commodity trading funds, with losses ranging from $300 million to $500 million.
And prior to crude oil's big drop, there was the violent reversal in silver, kicked off by margin hikes and a rush for the exits. These convulsions appear to have spread all across the commodity complex.
On Wednesday of this week, it was time for yet another flash crash du jour -- this time in gasoline futures. Via The Wall Street Journal:
At 12:06 p.m. Eastern time Wednesday, gasoline prices fell to the 25-cent daily limit set by commodities-exchange operator CME Group Inc. That triggered a five-minute trading halt for gasoline, crude oil and heating oil.
Trading resumed with a 50-cent limit for gasoline. Prices stabilized, but gasoline ended down 25.69 cents. On a percentage basis, the decline was the steepest in more than two years.
The catalyst? A U.S. Department of Energy report showing an unexpected buildup of gasoline stockpiles. With supply tightness less than expected, gas prices (at least in the futures) went into freefall.
Refiners were hit by the move, as the "crack spread" -- a measure of price difference between crude oil costs and refined product -- narrowed sharply. (For refiners, the wider the spread the better, as it increases profit margins on what they sell.)
Sitting opposite of refiners were airline stocks, the prices of which jumped sharply as the crack spread came in. For airlines, less supply tightness means lower fueling costs. (That can make a big difference: Jeff Smisek, the CEO of United, says his airline spends $25,000 per minute on jet fuel.)
And what does this mean for markets? On a broader level, it's a mixed bag.
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