Its time to keep an eye on gas prices

NOTE: Ugh. I just noticed this one has been sitting unpublished in the queue since 2025-03-21. Quite the pity, as unleaded gas has rallied nicely in the interim. I apologize for not getting this one to you in a more timely manner. Under the category of "(hopefully) better late than never," some, er, recent thoughts on why gas may continue to rally. Jay

Key points

• Unleaded gas futures have traded sideways to higher for months
• Political pressure is being applied to try to lower energy prices
• In the meantime, seasonality, sentiment, and smart money indicators still favor higher prices for unleaded gas futures and ETF UGA

Unleaded Gas futures have been quietly working higher

The price of gasoline at the pump has trended lower in recent weeks. Meanwhile, unleaded gas futures have been trending sideways to slightly higher since August 2024.

Which way from here? The popular view is that the efforts to increase production and reduce traditional energy prices will push prices lower. And that may be how it plays out. In the meantime, the bulk of objective indicator evidence suggests higher unleaded gas futures in the near term.

Seasonality favors higher unleaded gas futures

The chart below displays the annual seasonal trend for the unleaded gas futures. 

We see a clear tendency for higher prices in the first half of the year and lower prices in the second half. The chart above highlights the period from Trading Day of the Year (TDY) #53 through TDY #102. For 2025, that period runs from the close on 2025-03-17 Through 2025-05-23.

The chart below displays the hypothetical dollar return from holding a long position in Unleaded Gas futures from the end of Trading Day of the Year (TDY) #53 through TDY #102 since 2006.

The table below summarizes unleaded gas performance during this period.

One crucial thing to note is that when unleaded gas falls (instead of rising) during this time of year, it tends to go down hard. Note the median loss over -$10K and a maximum loss over -19K. The bottom line: When this seasonal trend is wrong, it is usually very wrong. 

Sentiment is still a positive factor for higher unleaded gas futures

The chart below highlights with a red dot those dates when the 20-day moving average of our Optix indicator crossed above 34 for the first time in six months.

The tables below summarize subsequent unleaded gas futures performance and show signal-by-signal results. Two- and three-month periods have seen higher prices two-thirds of the time. Six- and twelve-month Win Rates have approached 90%.

The most recent signal occurred on 2024-10-02, so as we move into the "six to twelve months since a signal" period, we might expect to see some acceleration higher in unleaded gas soon. 

Commercial Hedgers are not bearish

Commercial hedgers are considered the "smart money" in the futures market. Interestingly, since unleaded gas futures started trading in 2005, commercial hedgers have never held a net long position (unsurprising since they sell futures to hedge against a price decline for their inventory). However, as the chart below shows, their position recently reached one of its highest recorded levels, which is considered favorable for unleaded gas futures (i.e., smart money is not overly concerned about a short-term price decline).

The chart above highlights all dates when the Unleaded Gas Hedger's Position was at -24,000 or higher (i.e., large corporations who deal in actual unleaded gas have a minimal net short position in the futures market).

The table below summarizes unleaded gas futures performance following readings above -24,000.

A 66% two-month Win Rate and a 75% 1-Year Win Rate means this is no "sure thing." Still, the huge average and median return for six and twelve months suggests giving the bullish case the benefit of the doubt.

What the research tells us…

A lot of political effort is being made to lower gasoline and other energy prices. If these efforts successfully affect the supply and demand of these products, then prices can certainly trend lower. That said, the above indicators suggest higher prices for unleaded gas futures in the interim. As long as unleaded gas futures hold above their moving average, traders may be wise to continue to give the bullish case the benefit of the doubt. Traders must also recognize that trading unleaded gas futures is best left to deep-pocketed traders who can handle significant risk. Other traders who want to play the long side of unleaded gas might consider purchasing shares of the United States Gasoline Fund LP ETF (ticker UGA), which can be bought and sold in a stock account like shares of any stock.