$3.80 gasoline coming soon to a station near you -- update

Wow... it is amazing how much the markets can move when they put their minds to it. Earlier today I wrote:

The wholesale price (September 2008 Gasoline RBOB futures contract) today is sitting at $3.0689 per gallon. Add 60 to 65 cents to the wholesale price to get to target retail price, which would be $3.66 to $3.71. That means we could see declines of up to 17 to 22 cents over the next week or two. That would certainly be a welcome relief to consumers.

Now, I have to update that to:

The wholesale price (September 2008 Gasoline RBOB futures contract) today is sitting at $2.9924 per gallon. Add 60 to 65 cents to the wholesale price to get the target retail price, which would be $3.59 to $3.64. That means we could see declines of up to 24 to 29 cents over the next week or two. That would certainly be a welcome relief to consumers.

What happened? Traders decided that Tropical Storm Edouard was not as big a risk as initially thought. Barack unveiled his "stick it to the big energy companies" energy plan. The September futures contract became "front month" today and there is always a lot of volatility in the days immediately before and after the traansition to a new front month. I am sure there were other factors. My suspicion is that somebody is spreading rumors that gas and oil are not going to stop falling until we break below $100 oil again and that their intention is simply to con people into going way too short and then instigating a dramatic short-squeeze rally. We'll see how this plays out.

In any case, the Fed can breathe a sigh of relief that the prime driver for recent inflation is backing off.

-- Jack Krupansky