With Crude Oil up $2 more dollars today, it seems like just a matter of time until we see $5 per gallon gas in the US. (here in Chicago we’re already seeing $4.50 at some stations).
Those of us in the managed futures industry usually have an odd take on price increases such as this, sometimes actually ‘cheering’ prices higher despite the pain it will do to our budgets and credit card bills.
This is because our clients are usually benefitting from such trends higher, thanks to most managed futures programs being designed to try and capture trends in one manner or another. Indeed, one of the main reasons for getting involved with managed futures for many is the desire to participate in trends such as the one we’ve seen in crude (see our past post on Crude’s breakout signaling a new trend up).
But it seems a little bit different this time. For one, most managed futures program which are long Crude just got long recently (around $100), so while profitable – it’s not that profitable that you can ignore what’s happening at the pump. Secondly, do we really want $5 gasoline throughout the summer? Will managed futures participants really offset the extra real costs they will incur via their long exposure in a managed futures program (whose gains could be offset by losses elsewhere).
And finally, participation in managed futures doesn’t guarantee you will participate in trends such as the move higher in Crude Oil. Of the CTAs we track, there are only a handful of programs with long energy exposure.
Short term systematic programs Futures Truth SAM 101 and systematic multimarket programs APA Strategic Diversification, Auctos Capital Global, Covenant Capital Aggressive, James River Navigator, Futures Truth MS4, and Robinson Langley Capital are all long crude, while short term systematic Accela Global Short Term is long JPE Gas and Bouchard Capital is long heating oil.
While these programs will likely be cheering Crude higher yet, the higher costs for gas, plane tickets, food, and everything else is likely to dampen the enthusiasm somewhat. The bottom line – sometimes you have to be careful what you wish for…