The number “2” will be replaced by the number “1” at thousands of U.S. gasoline stations this week, thanks to a wholesale price slide that has clearly deepened. Yesterday’s comments from the Saudi oil minister, noting that supplies are balanced, has done nothing to dispel the crisis of confidence and outright fear among speculators who still hold long oil positions.

   My hunch is that we will see some sub-$50 bbl crude oil prints on the futures’ markets today. I still believe that we are closer to a bottom than to a midpoint, or certainly to a top, but the tidal waves of selling in oil markets haven’t yet run their course. Hint: You may know that the sell-off is history when there is a piece of bearish news that gets ignored by the trading community.

   Americans may soon see street prices for gasoline as low as $1.60-$1.75 gal in some Midwestern states. Every year, the upper Midwest gets caught with too much Winter gasoline (gas needs to be very volatile for cold weather starts, but unsuitable for Spring) and this year’s midwinter selloff on the wholesale markets has been accompanied by violence and pure panic.  Wholesale prices for gasoline in some Great Lakes’ states may soon flirt with $1.10 gal, and that represents a slide of about 50cts gal in less than 30 days.

   There is a great distance between “average” prices for gasoline and the leading edge where many of the sales are taking place. More than 30 states now have some sub-$2.00 gal gasoline but we’ve yet to see a single state’s average price dip below that threshold. We will see it by the weekend, and the first states to cross that mark will be Missouri, Michigan, Oklahoma, Ohio, South Carolina, and Indiana.

   Just remember that panic selling is often interrupted not by equilibrium, but instead by panic buying. When these trends turn, and they will turn, it will be quite violent and spectacular.

A Few Words about Boone Pickens

   Two tangential elements of the oil markets have me a bit riled today. I am of course referring to T. Boone Pickens and the Producer Price Index.

   T. Boone Pickens, the Texas billionaire and hedge fund manager, has reiterated his forecast that oil will average $70 bbl in 2007. Pickens was perhaps the highest profile member of the $100 bbl “superspike” club for oil prices, telling reporters several times in 2006 that $100 bbl oil was likely.

   Mr. Pickens has taken a mea culpa, and noted that he did not foresee the recent downturn. We’ll probably see some sub-$50 bbl price quotes for benchmark WTI and Brent crude oil futures this week, and perhaps within hours.

   We all miscalculate. But what irks me is that individuals who have great wealth invested in oil positions are almost always accorded “expert” status, even though they are cheerleaders rather than objective sideline analysts. We may see $100 bbl crude at some point in the next decade, but any visitation there will be brief. We may even see $30 bbl crude before the decade is out, but likewise, the time spent at such an extreme will be quite short. If you have a vested interest in either outcome, there’s much less credibility. (Note: the author holds no interest in oil futures, options, or equities. All of Mr. Kloza’s funds are tied up in his teenage girls).

Stale Government Data With No Preservative

   A second item that has also should provoke some additional scrutiny and perhaps even some outrage can be found in the release of this morning’s Producer Price Index (PPI) by the Department of Labor.

   The data showed wholesale price inflation to be around 0.9 percent in December, exceeding most analyst’s expectations. But remarkably, wholesale prices for energy rose 2.5 percent, according to the government report, led by a 7.1 percent hike in wholesale gasoline.

   This is stale and moldy bread, plain and simple. Years ago, our editorial staff checked into the compilation of the PPI energy components, and we found that the time lag was significant - - a report on December, might reflect price activity into the third week of that month, but hardly measured the entire 31 days, we concluded.

   OPIS has a database of hundreds of thousands of wholesale prices, and the ability to calculate the movement with lags of hours, and not days or weeks. Here’s what has happened to wholesale prices for some key fuels from Christmas week through Tuesday evening. We can call it our own post-PPI.

Market/Product                December 20, 2006 to January 16, 2007 Price Change

     ------                                 -------------------------------------------------

Gulf Coast Gasoline           Down 20 percent

Gulf Coast Jet fuel             Down 7.3 percent

Gulf Coast Diesel                Down 11.7 percent

Chicago Gasoline              Down 45 percent

Chicago Jet fuel                 Down 13 percent

Chicago Diesel                   Down 16 percent

Los Angeles Gasoline           Down 15 percent

Los Angeles Jet Fuel            Down 14 percent

Los Angeles Diesel               Down 13 percent

   I’ve rounded off the numbers, and admit that this represents a “back of the envelope” calculation of just a few bulk markets. But I have no doubt that the government’s PPI report represents a package lost in the mail, and wonder whether the same dated stale picture of wholesale trends is applicable to the other elements of that widely referenced and critical index.