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Column | Futures File

Walt Breitinger: What goes into gas prices?

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With Treasury Secretary Janet Yellen predicting elevated gas prices are likely to persist, more folks are wondering what is causing the rise in addition to general inflation. The U.S. Energy Information Administration explains that the retail price of gasoline is composed of four basic cost components: crude oil, refining, distribution and marketing, and taxes. The prices we quote here in Futures File for refined gasoline in NY harbor do not include the costs of retail marketing, the cost to get the fuel to your local pump, or state or federal taxes. The cost of crude oil makes up roughly 54% of the retail price of unleaded gasoline, the refining component 14%, distribution and marketing 16%, and taxes 16%. Unleaded gasoline for July delivery brought $4.203 cents per gallon Friday afternoon, up roughly 10 cents on the week.

Ukraine can’t export grain

In addition to production problems related to both the war and dry weather, the storage and export of wheat from Ukraine was further blocked by Russia. Early last week, Russia bombed two major storage facilities in ports on the Black Sea and shut down shipping with naval blockades.

With Russia and Ukraine normally exporting a third of the world's grain through the black sea, restoring transportation by either ship or rail is becoming more urgent each week. A worsening drought in Europe, especially France, has exacerbated the wheat shortage just as that crop is desperately needed to feed that major region of the world. Drought in Argentina has also added fears to a worldwide food shortage. The USDA's supply and demand report on Friday was near expectations. World ending stocks of corn were actually better than the average predictions.

Wheat for July delivery was about unchanged on the week, July corn $7.70 and soybeans for July delivery traded at $17.50 per bushel.

Inflation blows up by 8.6%

The Federal Government released the most widely tracked inflation benchmark on Friday, the consumer price index (CPI). The CPI rose by an unexpectedly high rate of 8.6%, another 40-year-high, including a sharp increase in food and energy prices. The report is a grim outlook for the Federal Reserve, which is already planning a half of a percent rate hike in June, July and September. Chairperson Powell may now have to face the possibility of a .75% rate hike soon to help temper inflation. Stock indexes and treasury bond futures tumbled on the worrisome news. The June Dow Jones futures contract skidded over 800 by noon on Friday, whereas the June S&P was down 110 points at 3900.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Indiana. He can be reached at 800-411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.

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