A Follow up on the Futures Market and Gasoline Prices

You may have noticed gas prices have started to drop slightly, which is unusual going into summer. It may be a temporary blip, but there is evidence to suggest it is an ingrained trend. Namely, the price of a gas futures contract is dropping, which means the market expects gas prices to decrease (perhaps the evil speculators were convinced to stop profiteering). While future expectations aren't always correct, there is good evidence of them being among the best unbiased predictors of future prices. 

Economist Menzie Chinn calculates that the futures market is predicting prices to continue drifting down to $3.50 a gallon by years end (see graph above). If correct, it means the highest gas prices for the year are already behind us.

It is unusual for gas prices to decrease before summer. But the unusually warm winter has pulled forward at least some of the demand increase associated with warmer weather. Additionally, oil demand is less dependent on the changing of the seasons in rich countries in the northern hemisphere than it used to be. The developing world grows year round. Whatever the reasons, if I had just made statements about speculators colluding to increase the price of oil and gasoline, only to see the market change and prices fall a week or so later, I would feel pretty embarrassed.