The oil markets were semi-closed today, but let me provide further explanation to that qualified statement.
The business week now includes nearly 24 hours per day of electronic trading, but the open outcry sessions that take place on the floor of the N.Y. Mercantile Exchange were closed for the day of mourning for President Ford. So, oil traded today in the U.S. and abroad, but it did so without the wild hand signals and boisterous yelling that are characteristic of futures pits.
But today still brought significant electronic trading and a relatively weak start to the New Year. Crude lost about 20cts bbl and was last quoted at $60.84 bbl for West Texas Intermediate (WTI) blend. Heating oil futures dropped by about 0.5cts gal and gasoline lost about 0.6cts gal in the electronic space.
The extraordinarily mild winter (so far) has set up a very sloppy track for 2007 oil prices, and it may be a while before any crude oil or gasoline rally gets out of the gate. I suspect that when most professional traders return to their desks tomorrow, we will see some short term weakness, prompted by a slightly revamped Yogi-ism: “It’s getting late early for Winter fuels’ demand.”
Keeping with the horse racing metaphor, I still believe that the crude oil and gasoline markets will behave like thoroughbreds later in the first quarter. But they’ll be stuck in the slop for much of January.
OPIS Almanac: We start 2007 with a nice round number for the nation’s daily gasoline fuel bill. Demand as calculated by the Energy Information Administration (EIA) is about 9.229-million b/d or roughly 387.6-million gallons per day. The average retail pump price across the country is $2.322 gal, so simple arithmetic puts today’s bill at $900.049-million. We’ll round it off and call it $900-million.
That compares with a 2006 daily tally of $834-million; a $647-million bill in 2005; $548-million in 2004; $515-million in 2003; $385-million in 2002; and $471-million in 2001.
If you’d like an historically appropriate “back of the envelope” reckoning of January 2, 1977 (when President Ford was preparing the White House for Jimmy Carter) you wouldn’t be far off the mark with an estimate of just over $150-million on that day.
OIL PRICES THEN & NOW …
There’s nothing that prompts a “now & then” comparison like the death of a president, so forgive me if I wax nostalgic, but stay relevant to the oil price topic, on this national day of mourning for President Gerald Ford.
President Ford’s final months of 1976 and 1977 didn’t represent the digital age for the U.S., but marked my own career debut as an oil price reporter thanks to some digital prowess - - -I could type 120 words per minute on an IBM Selectric typewriter and was hired as a typist/editor.
To underscore how different oil markets were then versus now, let me hit you with one incredible statistic:
In all of 1976, the price of Saudi Light crude did not change a single cent.
The official posted price, which back then was indeed the price that customers were required to pay, remained at $12.37 bbl for the entire year.
Now contrast that with 2007. The price of crude oil literally changes hundreds of thousands of times each day, thanks to the successful exchanges where crude oil, gasoline, heating oil, and natural gas futures are traded. And whereas the late 70’s saw trading almost exclusively by commercial oil companies, the merchants that drive the volatility of 21st century pricing are swelled considerably by banks, hedge funds, speculative commodity funds, pension funds, and money managers of various persuasions. When financial markets reopen for business tomorrow, January 3, we’ll probably see more oil traded in a single session than is consumed in several weeks of the global calendar.
This is not an indictment of these new markets. The New York Mercantile Exchange (NYMEX) and the InterContinentalExchange (ICE)hit their collective strides as references for world oil prices about twenty years ago. Since that time, these regulated formal futures’ markets have delivered huge price drops as well as colossal price increases.
But the volume and the modern day volatility serve as reminders that the price of oil is not set in smoke-filled boardrooms in Houston, Dallas, or Tulsa but in the world financial centers in New York, London, Tokyo, Beijing and Frankfort.
Gasoline prices during the Ford years were sleepy as well. One of my responsibilities back then was to chart the posted wholesale prices for major and independent refiners. I can remember complaining one Spring that several suppliers had changed wholesale prices twice in one month. How dare they put a young college grad under such pressure?
Of course, nowadays it is standard for every single wholesale price to change each and every day, sometimes by 5cts gal or more. I’ll reiterate what I’ve been saying for years: Wholesale oil prices represent the adjustable rate mortgage that adjusts every business day. That rate is set on the major exchanges but the impact ripples through on almost a “tape-delayed” basis to the street.
And where were street prices during the latter months of the Ford presidency? According to EIA data, the nationwide average pump price for regular leaded gasoline (the standard then) was in the high 50’s for much of 1976, with unleaded about 2cts gal higher.