Gas prices should drop by Thursday: Energy expert

Gasoline is forecast to drop roughly 6–8 cents per litre on Thursday to about C$1.52–1.54/L from ~C$1.60/L (Tuesday/Wednesday ~C$1.599–1.600/L); diesel is expected to fall ~6 cents to C$1.93/L from C$1.99/L. Oil prices retraced ~US$11/bbl to about US$83/bbl after President Trump publicly guaranteed passage through the Strait of Hormuz and reports of coordinated releases, while last-week output cuts were reported: Saudi −2.0–2.5m b/d, UAE −0.5–0.8m b/d, Kuwait −0.5m b/d and Iraq ~2.9m b/d (per Reuters/Bloomberg as cited).

Analysis

Markets have front‑loaded the geopolitical reassurance into crude prices, but the mechanics that govern pump prices run on different clocks: tanker insurance, charter availability, and refinery scheduling introduce 3–10 day frictions between an oil price move and retail fuel. That lag amplifies short windows of volatility into predictable margin shocks for midstream/refining players — refiners that can quickly shift feedstock sources will capture outsized optionality while retail chains with fixed wholesale contracts will see margins reprice only when spot supplies settle.

Second‑order supply effects matter more than headline cuts: broad OPEC+ output discipline raises the floor on a mechanical oil sell‑off even when shipping routes reopen, because reduced crude volumes compress available light/sweet barrels for Atlantic basin refiners and keep product cracks supported relative to crude. Conversely, if insurance and naval escorts fully normalize transit risk, expect tankers to discharge into storage hubs (ARA, USGC) and push product inventories up, pressuring swaps and encouraging short covering in freight rates.

Time horizon bifurcates risk: over days the dominant driver is sentiment/insurance repricing and tactical releases of buffer stocks; over weeks the structural story is inventory rebalancing + OPEC+ behaviour. The practical takeaway is a two‑sided market where tactical short‑dated bets capture knee‑jerk moves while cheap tail hedges protect against an asymmetric geopolitical reversal that would re‑inflate prices quickly.

Key Decisions for Investors

• Buy short‑dated crude downside via a put spread on USO or short‑dated WTI futures (2–4 week expiry). Target a ~8–12% OTM put spread to limit premium paid; reward profile 3–5x if the headline reassurance persists and tankers/insurance normalize. Size as a tactical book (1–2% NAV); stop‑loss if front‑month reverses >6% intraday.
• Sell near‑term gasoline crack exposure via refiners/retailers: initiate a small short position in PBF (or regional gasoline wholesale exposures) for 1–3 weeks to capture margin compression from retail pass‑through lags. Risk: immediate geopolitical reversal could spike margins — cap position to 1.5% NAV and hedge with a 1‑month out‑of‑the‑money crude call.
• Buy 3‑6 month airline/transportation calls (e.g., AAL or DAL) as a play on sustained lower jet/diesel costs improving unit economics; use spreads to cap premium (bull call spread). This is a calendar trade: if fuel relief persists into summer, expected upside 2–4x premium; downside limited to premium paid if geopolitical risk returns.
• Purchase cheap 2–4 month out‑of‑the‑money crude call calendar as tail protection (long-dated OTM call or call fly) to hedge against Iran escalation. Treat as insurance: small allocation (~0.5% NAV) that pays >5x if price gaps up sharply, while costing little if the market stays calm.