Did we hit bottom for global crude oil and gasoline prices last week? Perhaps, and in a moment, I’ll take a look at what that might mean for oil prices in the next 100 days or so, should MLK week represent the nadir for NYMEX futures prices in at least the first half of 2007.
But first, let’s dismiss any notion that we’ve seen the bottom for retail gasoline prices, or even retail diesel numbers. There is enough catching up to do so that we will certainly see another nickel or so in lower aggregate numbers that OPIS captures from the 100,000 or so stations that make up our database for AAA. (For details see www.fuelgaugereport.com) It may be that the cheapest numbers in some markets won’t dip further, but we’ll see many of the midlevel and upper echelon numbers cave further. Metaphorically, the “supersaver” fares have been set, and now some of the full fare prices need to move closer to that leading edge.
Average nationwide retail pump prices this morning are at $2.16 gal, down 18cts gal from last month and off 17cts gal from one year ago. It’s reasonable to assume that there is enough momentum to bring this average down to about $2.10 gal by Superbowl Sunday.
Eight states today have average prices that have dipped below $2.00 gal. Another twenty or so have at least some counties with $2.00 gal commonly breached by the aggressive chains. The West Coast still has the highest prices, with many states there recording average prices of well over $2.50 gal.
If Last Week Was The Bottom . . . .
What might motorists eventually expect to pay if last week’s visit to $49.90 bbl for crude and $1.335 gal for gasoline futures does indeed represent the bottom in this current cycle?
Well, first of all, don’t expect a spectacular ricochet higher in the rest of January or early February. Gauging possible market bottoms within weeks of their occurrence is highly subjective, quite often making Rorschach inkblot tests seem simple and clear cut. It may take weeks of choppy trading before one can look back retrospectively and conclude that January 15-19, 2007 represented the absolute low tide for oil.
But based on the studied behavior of these markets for two decades, if indeed the $49.90 bbl crude price and $1.3351 gal gasoline futures’ quote represent the low water mark, I’ll plug in some numbers that calculate what one might expect based on typical tidal recoveries in the last 20 years. Incidentally, this has nothing to do with whether we remain in a long term bull market or are in the first few quarters of a new bear market.
History suggests that an average seasonal rally in crude oil will take us up about 30 percent or so, which in this case would target nearly $65 bbl. That same historical template implies that an offseason bottom of $1.335 gal for gasoline might be followed by an average increase of perhaps 34cts gal which would put the futures price at $1.79 gal.
These are merely the averages - - -if one applies more typical 21st century recoveries to these “bottoms”, we could ultimately see increases that would have crude again knocking on the $70 bbl door, with gasoline futures above $2.00 gal. I did note in my late December forecast for 2007 that I thought the high tides would not be as severe as in recent years, but one should always be prepared for the extremes.
Meanwhile, I am not convinced that rock bottom has been reached for the global markets. One usual sign of that bottom is when the great majority of the trading community turns bearish - - - when bears outnumber bulls by a three-to-one margin, for example, it’s almost always a clear sign that there is no one left to sell.
Right now, there’s relative balance among the huge speculators, with no strong preference in direction. Perhaps that’s simply recognition that this market remains extremely dangerous and subject to violent and unpredictable moves through the Winter.