Volatility is a term that gets thrown around a lot around the petroleum markets, especially in times like these, as NYMEX futures reach its monthly expiration.
In a brief report, "Intra-Day Price Volatility: A Look at the Face and Potential Implications," DTN's Laurence Cohen says with increased volatility, the amount of intra-day price changes from gasoline suppliers jumped as they began to sharply increase the frequency of 6pm effective times for rack prices, accelerating a trend away from the once-a-day midnight price change that has been going on several years.
(DTN is a provider of rack price information, and is a partner with Platts in several initiatives).
"In 2004, 6 p.m. prices (end of business day) represented only about 10 percent of all price moves, but by 2009 this increased to about 80 percent of all price moves," Cohen said.
The difference in intra-day price moves varies from region to region, and branded to unbranded. Cohen notes that "intra-day moves are most prevalent in the PADD 2 (Midwest), while intra-day moves are less common in the PADD 4 (Rocky Mountain) area." The PADD 4 finding certainly would not be viewed as surprising, given that there is no active cash market for physical products in the region. But without any other knowledge, it might be guessed that the Gulf Coast market -- PADD 3 -- would be more active than PADD 2 as the locale for numerous changes.
The gap between branded and unbranded business is large, Cohen noted. Where intra-day moves affect make up 20 percent of unbranded price moves, only 2 percent of moves come on the branded side.
So where does Cohen see volatility for the remainder of 2009?
"Forecasting volatility for 2009 is of course difficult," Cohen says. "However, looking at the month-to-month variance in 2008, it is apparent that any supply disruption or geopolitical event is likely to keep volatility high during 2009."
Intra-day price changes will continue to increase, however, in both branded and unbranded businesses, according to Cohen.
"Similarly, the shift toward intra-day price changes requires buyers and sellers to have much better information and systems in order to react and execute decisions effectively," Cohen adds. "This transition appears to be taking place and will continue to gain momentum."
For business owners, there are implications to steady volatility and intra-day price changes, such as a loss in profitability.
"As a buyer, there may be better deals out in the market that may not be apparent by only looking at rack prices once a day," Cohen says. "As a seller, there may be opportunities to capture additional margin and sales by increasing frequency of intra-day moves to reflect market conditions."
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