HISTORY LESSON: HOW LOW WILL OUR WINTER GASOLINE GO?
This week will almost certainly see talk about the end of the bull market for crude oil and related products. Crude oil Tuesday morning scraped nineteen month lows, with WTI futures trading for as little as $53.88 bbl before a late day recovery ensued. There is an excellent chance that prices will deteriorate further before this round of selling is over. Several of the investment banks and global think tanks have taken what amount to “mulligans” on their 2007 oil forecasts in recent days. I won’t do that, although I stress that my forecast is limited to about six-to-eight months of visibility.
I’ll hold to what I wrote in December; namely, that 2007 is unlikely to see the $75-$78 bbl peak numbers that were witnessed in 2006, but stress that it’s premature to expect a return to the $40’s. This premise may be severely tested this week -- - oil markets are bipolar, and there is a sentiment swing in progress that is Sylvia Plath-like in its scope.
In the meantime, let’s constructively look at where gasoline prices might be headed in this suddenly depressive environment for fuel. I believe that there is the potential for some Winter days where the nation’s collective daily gasoline bill plunges near $700-million. It is about $890-million at the moment. The bill for much of 2006 was more than $1-billion per day.
We begin today with nationwide pump prices averaging $2.297 gal. More importantly, today is the first day this year where the average price is below that of twelve month ago levels. This streak (of lower year-vs.-year prices) may very well continue through much of the year, and will certainly persist through most of the Winter. But it’s not as if the nation can go out and underwrite national healthcare - -- today’s fuel prices are less than a penny below last year, and we’re using more, so overall we are still meting out additional cash and credit each day.
But where can we expect this Winter downtrend to lead? And will that point serve as a likely launching pad for the Spring rally?
In a market downtrend, gasoline prices are indeed a reflection of wholesale costs. The difference is that in a severe uptrend, the prices move in almost pure step with wholesale increases. In a downtrend, it’s as if we are watching a “tape delayed” broadcast. But nevertheless, street prices will eventually gravitate to numbers that reflect wholesale costs, plus tax, plus about 15cts gal in gross (emphasis, please) mark-up.
Gasoline futures prices - - which these days reflect reformulated blendstock, known as “RBOB” and traded on the N.Y. Mercantile Exchange - - metaphorically represent what the Fed Funds’ number is to interest rate levels. It’s this futures’ price which serves as a benchmark for establishing the wholesale gasoline price from Portland Maine to Portland Oregon and all points in between. As I write this epistle, gasoline futures are valued at about $1.475 gal. If that price were fixed in time for a number of weeks, we would be looking at a retail downtrend that might take nationwide prices down to about $2.10-$2.15 gal. That average would probably include perhaps a dozen states where gasoline would be available in midwinter for less than $2.00 gal. There are about eight states with numbers below that level at the moment.
My best guesstimate is that gasoline futures will bottom somewhere in the $1.30’s and they will hit that bottom in the next 30 days. But I believe that prices will spend days, and not weeks at such “depressed” levels. The gasoline we use in January and February is perishable - - it needs to be purged from the distribution system by Spring, and replaced with the much more expensive Summer specs, which are less volatile and don’t contribute to ozone problems.
To cut to the chase: We will see a number of east of the Rockies’ markets flirt with $2.00 gal or less at the street level in the remainder of January.
The lowest price in the first half of 2006 was the $2.21 gal number that ushered in that new year. Prices were mostly congestive in the first two months, rising 12cts gal in the first two weeks, but ultimately fading back to $2.23 gal by mid-February. From there, it was off to the races, with $2.50 gal reached by the vernal equinox; $2.92 gal hit on Cinco de Mayo; and $3.00 gal surpassed in the late dog days of July.
We’re clearly on a different path this year. “Average” prices may dip below $2.10 gal against the backdrop of the 2007 NFL playoffs. The bottom should be put in place by the time the first Spring training baseball games are under way, and the recovery should take prices to $2.50-$2.75 gal by May.
The West Coast will show severe separation from these average numbers. California and Pacific Northwest prices may well dip below $2.50 gal, but that region will not approach the $2.00 gal and lower quotes that may be relatively commonplace in some Gulf Coast and Midwestern markets shortly. Supplies of gasoline should be more comfortable this year in perhaps 45 states. But that distinction doesn’t extend to the states of California, Oregon, Washington, Nevada, and Alaska.
Note: Tomorrow, I’ll take a measured look at diesel prices, a product which over the short term may be highly levered to Winter temperatures.
This week will almost certainly see talk about the end of the bull market for crude oil and related products. Crude oil Tuesday morning scraped nineteen month lows, with WTI futures trading for as little as $53.88 bbl before a late day recovery ensued. There is an excellent chance that prices will deteriorate further before this round of selling is over. Several of the investment banks and global think tanks have taken what amount to “mulligans” on their 2007 oil forecasts in recent days. I won’t do that, although I stress that my forecast is limited to about six-to-eight months of visibility.
I’ll hold to what I wrote in December; namely, that 2007 is unlikely to see the $75-$78 bbl peak numbers that were witnessed in 2006, but stress that it’s premature to expect a return to the $40’s. This premise may be severely tested this week -- - oil markets are bipolar, and there is a sentiment swing in progress that is Sylvia Plath-like in its scope.
In the meantime, let’s constructively look at where gasoline prices might be headed in this suddenly depressive environment for fuel. I believe that there is the potential for some Winter days where the nation’s collective daily gasoline bill plunges near $700-million. It is about $890-million at the moment. The bill for much of 2006 was more than $1-billion per day.
We begin today with nationwide pump prices averaging $2.297 gal. More importantly, today is the first day this year where the average price is below that of twelve month ago levels. This streak (of lower year-vs.-year prices) may very well continue through much of the year, and will certainly persist through most of the Winter. But it’s not as if the nation can go out and underwrite national healthcare - -- today’s fuel prices are less than a penny below last year, and we’re using more, so overall we are still meting out additional cash and credit each day.
But where can we expect this Winter downtrend to lead? And will that point serve as a likely launching pad for the Spring rally?
In a market downtrend, gasoline prices are indeed a reflection of wholesale costs. The difference is that in a severe uptrend, the prices move in almost pure step with wholesale increases. In a downtrend, it’s as if we are watching a “tape delayed” broadcast. But nevertheless, street prices will eventually gravitate to numbers that reflect wholesale costs, plus tax, plus about 15cts gal in gross (emphasis, please) mark-up.
Gasoline futures prices - - which these days reflect reformulated blendstock, known as “RBOB” and traded on the N.Y. Mercantile Exchange - - metaphorically represent what the Fed Funds’ number is to interest rate levels. It’s this futures’ price which serves as a benchmark for establishing the wholesale gasoline price from Portland Maine to Portland Oregon and all points in between. As I write this epistle, gasoline futures are valued at about $1.475 gal. If that price were fixed in time for a number of weeks, we would be looking at a retail downtrend that might take nationwide prices down to about $2.10-$2.15 gal. That average would probably include perhaps a dozen states where gasoline would be available in midwinter for less than $2.00 gal. There are about eight states with numbers below that level at the moment.
My best guesstimate is that gasoline futures will bottom somewhere in the $1.30’s and they will hit that bottom in the next 30 days. But I believe that prices will spend days, and not weeks at such “depressed” levels. The gasoline we use in January and February is perishable - - it needs to be purged from the distribution system by Spring, and replaced with the much more expensive Summer specs, which are less volatile and don’t contribute to ozone problems.
To cut to the chase: We will see a number of east of the Rockies’ markets flirt with $2.00 gal or less at the street level in the remainder of January.
The lowest price in the first half of 2006 was the $2.21 gal number that ushered in that new year. Prices were mostly congestive in the first two months, rising 12cts gal in the first two weeks, but ultimately fading back to $2.23 gal by mid-February. From there, it was off to the races, with $2.50 gal reached by the vernal equinox; $2.92 gal hit on Cinco de Mayo; and $3.00 gal surpassed in the late dog days of July.
We’re clearly on a different path this year. “Average” prices may dip below $2.10 gal against the backdrop of the 2007 NFL playoffs. The bottom should be put in place by the time the first Spring training baseball games are under way, and the recovery should take prices to $2.50-$2.75 gal by May.
The West Coast will show severe separation from these average numbers. California and Pacific Northwest prices may well dip below $2.50 gal, but that region will not approach the $2.00 gal and lower quotes that may be relatively commonplace in some Gulf Coast and Midwestern markets shortly. Supplies of gasoline should be more comfortable this year in perhaps 45 states. But that distinction doesn’t extend to the states of California, Oregon, Washington, Nevada, and Alaska.
Note: Tomorrow, I’ll take a measured look at diesel prices, a product which over the short term may be highly levered to Winter temperatures.
HISTORY LESSON: HOW LOW WILL OUR WINTER GASOLINE GO?
This week will almost certainly see talk about the end of the bull market for crude oil and related products. Crude oil Tuesday morning scraped nineteen month lows, with WTI futures trading for as little as $53.88 bbl before a late day recovery ensued. There is an excellent chance that prices will deteriorate further before this round of selling is over. Several of the investment banks and global think tanks have taken what amount to “mulligans” on their 2007 oil forecasts in recent days. I won’t do that, although I stress that my forecast is limited to about six-to-eight months of visibility.
I’ll hold to what I wrote in December; namely, that 2007 is unlikely to see the $75-$78 bbl peak numbers that were witnessed in 2006, but stress that it’s premature to expect a return to the $40’s. This premise may be severely tested this week -- - oil markets are bipolar, and there is a sentiment swing in progress that is Sylvia Plath-like in its scope.
In the meantime, let’s constructively look at where gasoline prices might be headed in this suddenly depressive environment for fuel. I believe that there is the potential for some Winter days where the nation’s collective daily gasoline bill plunges near $700-million. It is about $890-million at the moment. The bill for much of 2006 was more than $1-billion per day.
We begin today with nationwide pump prices averaging $2.297 gal. More importantly, today is the first day this year where the average price is below that of twelve month ago levels. This streak (of lower year-vs.-year prices) may very well continue through much of the year, and will certainly persist through most of the Winter. But it’s not as if the nation can go out and underwrite national healthcare - -- today’s fuel prices are less than a penny below last year, and we’re using more, so overall we are still meting out additional cash and credit each day.
But where can we expect this Winter downtrend to lead? And will that point serve as a likely launching pad for the Spring rally?
In a market downtrend, gasoline prices are indeed a reflection of wholesale costs. The difference is that in a severe uptrend, the prices move in almost pure step with wholesale increases. In a downtrend, it’s as if we are watching a “tape delayed” broadcast. But nevertheless, street prices will eventually gravitate to numbers that reflect wholesale costs, plus tax, plus about 15cts gal in gross (emphasis, please) mark-up.
Gasoline futures prices - - which these days reflect reformulated blendstock, known as “RBOB” and traded on the N.Y. Mercantile Exchange - - metaphorically represent what the Fed Funds’ number is to interest rate levels. It’s this futures’ price which serves as a benchmark for establishing the wholesale gasoline price from Portland Maine to Portland Oregon and all points in between. As I write this epistle, gasoline futures are valued at about $1.475 gal. If that price were fixed in time for a number of weeks, we would be looking at a retail downtrend that might take nationwide prices down to about $2.10-$2.15 gal. That average would probably include perhaps a dozen states where gasoline would be available in midwinter for less than $2.00 gal. There are about eight states with numbers below that level at the moment.
My best guesstimate is that gasoline futures will bottom somewhere in the $1.30’s and they will hit that bottom in the next 30 days. But I believe that prices will spend days, and not weeks at such “depressed” levels. The gasoline we use in January and February is perishable - - it needs to be purged from the distribution system by Spring, and replaced with the much more expensive Summer specs, which are less volatile and don’t contribute to ozone problems.
To cut to the chase: We will see a number of east of the Rockies’ markets flirt with $2.00 gal or less at the street level in the remainder of January.
The lowest price in the first half of 2006 was the $2.21 gal number that ushered in that new year. Prices were mostly congestive in the first two months, rising 12cts gal in the first two weeks, but ultimately fading back to $2.23 gal by mid-February. From there, it was off to the races, with $2.50 gal reached by the vernal equinox; $2.92 gal hit on Cinco de Mayo; and $3.00 gal surpassed in the late dog days of July.
We’re clearly on a different path this year. “Average” prices may dip below $2.10 gal against the backdrop of the 2007 NFL playoffs. The bottom should be put in place by the time the first Spring training baseball games are under way, and the recovery should take prices to $2.50-$2.75 gal by May.
The West Coast will show severe separation from these average numbers. California and Pacific Northwest prices may well dip below $2.50 gal, but that region will not approach the $2.00 gal and lower quotes that may be relatively commonplace in some Gulf Coast and Midwestern markets shortly. Supplies of gasoline should be more comfortable this year in perhaps 45 states. But that distinction doesn’t extend to the states of California, Oregon, Washington, Nevada, and Alaska.
Note: Tomorrow, I’ll take a measured look at diesel prices, a product which over the short term may be highly levered to Winter temperatures.
This week will almost certainly see talk about the end of the bull market for crude oil and related products. Crude oil Tuesday morning scraped nineteen month lows, with WTI futures trading for as little as $53.88 bbl before a late day recovery ensued. There is an excellent chance that prices will deteriorate further before this round of selling is over. Several of the investment banks and global think tanks have taken what amount to “mulligans” on their 2007 oil forecasts in recent days. I won’t do that, although I stress that my forecast is limited to about six-to-eight months of visibility.
I’ll hold to what I wrote in December; namely, that 2007 is unlikely to see the $75-$78 bbl peak numbers that were witnessed in 2006, but stress that it’s premature to expect a return to the $40’s. This premise may be severely tested this week -- - oil markets are bipolar, and there is a sentiment swing in progress that is Sylvia Plath-like in its scope.
In the meantime, let’s constructively look at where gasoline prices might be headed in this suddenly depressive environment for fuel. I believe that there is the potential for some Winter days where the nation’s collective daily gasoline bill plunges near $700-million. It is about $890-million at the moment. The bill for much of 2006 was more than $1-billion per day.
We begin today with nationwide pump prices averaging $2.297 gal. More importantly, today is the first day this year where the average price is below that of twelve month ago levels. This streak (of lower year-vs.-year prices) may very well continue through much of the year, and will certainly persist through most of the Winter. But it’s not as if the nation can go out and underwrite national healthcare - -- today’s fuel prices are less than a penny below last year, and we’re using more, so overall we are still meting out additional cash and credit each day.
But where can we expect this Winter downtrend to lead? And will that point serve as a likely launching pad for the Spring rally?
In a market downtrend, gasoline prices are indeed a reflection of wholesale costs. The difference is that in a severe uptrend, the prices move in almost pure step with wholesale increases. In a downtrend, it’s as if we are watching a “tape delayed” broadcast. But nevertheless, street prices will eventually gravitate to numbers that reflect wholesale costs, plus tax, plus about 15cts gal in gross (emphasis, please) mark-up.
Gasoline futures prices - - which these days reflect reformulated blendstock, known as “RBOB” and traded on the N.Y. Mercantile Exchange - - metaphorically represent what the Fed Funds’ number is to interest rate levels. It’s this futures’ price which serves as a benchmark for establishing the wholesale gasoline price from Portland Maine to Portland Oregon and all points in between. As I write this epistle, gasoline futures are valued at about $1.475 gal. If that price were fixed in time for a number of weeks, we would be looking at a retail downtrend that might take nationwide prices down to about $2.10-$2.15 gal. That average would probably include perhaps a dozen states where gasoline would be available in midwinter for less than $2.00 gal. There are about eight states with numbers below that level at the moment.
My best guesstimate is that gasoline futures will bottom somewhere in the $1.30’s and they will hit that bottom in the next 30 days. But I believe that prices will spend days, and not weeks at such “depressed” levels. The gasoline we use in January and February is perishable - - it needs to be purged from the distribution system by Spring, and replaced with the much more expensive Summer specs, which are less volatile and don’t contribute to ozone problems.
To cut to the chase: We will see a number of east of the Rockies’ markets flirt with $2.00 gal or less at the street level in the remainder of January.
The lowest price in the first half of 2006 was the $2.21 gal number that ushered in that new year. Prices were mostly congestive in the first two months, rising 12cts gal in the first two weeks, but ultimately fading back to $2.23 gal by mid-February. From there, it was off to the races, with $2.50 gal reached by the vernal equinox; $2.92 gal hit on Cinco de Mayo; and $3.00 gal surpassed in the late dog days of July.
We’re clearly on a different path this year. “Average” prices may dip below $2.10 gal against the backdrop of the 2007 NFL playoffs. The bottom should be put in place by the time the first Spring training baseball games are under way, and the recovery should take prices to $2.50-$2.75 gal by May.
The West Coast will show severe separation from these average numbers. California and Pacific Northwest prices may well dip below $2.50 gal, but that region will not approach the $2.00 gal and lower quotes that may be relatively commonplace in some Gulf Coast and Midwestern markets shortly. Supplies of gasoline should be more comfortable this year in perhaps 45 states. But that distinction doesn’t extend to the states of California, Oregon, Washington, Nevada, and Alaska.
Note: Tomorrow, I’ll take a measured look at diesel prices, a product which over the short term may be highly levered to Winter temperatures.