The Bush administration’s plan to quintuple usage of renewable fuels by the year 2017 and cut gasoline usage by one fifth is probably an unachievable target, and one that is sure to provoke plenty of fear and loathing among Washington lobbyists. However one views the plan, it is energy price neutral for the remainder of 2007 and we’ll have to see how devilish some of the details may be.

   But an element of yesterday’s State of the Union message had an immediate impact on global prices. When word leaked out in mid-afternoon that the Department of Energy would begin purchasing crude for the Strategic Petroleum Reserve, it sent crude oil prices up over $55 bbl, and helped spark a 7cts gal rally in gasoline futures and wholesale prices.  Was that response warranted and have we seen the Winter crude and gasoline price bottoms?

   We’ll get more resolution on this muddled picture in a couple of hours when the Energy Information Administration (EIA) releases its weekly statistical report on oil. I suspect that we’ll see more inventory builds for gasoline, and perhaps even heating oil, and I wouldn’t be surprised to see gasoline demand fall below 9-million b/d for the first time since last February. Again, gasoline is always plentiful in January and February, since it can be loaded up with cheap – but very volatile - - components that make it relatively easy for U.S. and offshore refiners to manufacture.

   The President’s speech included a strong advocacy for renewable fuels like ethanol and biodiesel. But the plans to add another 100,000 bbl per day of crude oil to the Strategic Petroleum Reserve (SPR) was relatively unexpected. OPEC has pledged a 500,000 bbl per day cut in output February 1, and March purchases of crude for the SPR could remove another 100,000 bbl for a total global tightening of 600,000 bbl per day.

   Yesterday’s 4 percent increases in crude oil and gasoline futures represented what market technicians might call a “ricochet”. It had much to do with frightened speculators who thought they could ride the temporary oil “glut” to huge profits on short sales. In the fury of the moment, the SPR purchases prompted fears that the planned doubling of the 689-million bbl reserve might be a prelude to military action in the region. Cooler heads are likely to prevail in the next few days, and rob some of this ricochet’s pitch.

   Meanwhile, retail gasoline prices today are now at their lowest level since Thanksgiving weekend of 2005, with a nationwide average of $2.147 gal. The nine or ten states with average prices below $2.00 gal may not move any lower, but I suspect that some of the high priced regions will see values moderate between now and Superbowl Sunday.

   The longer term view is more sobering. I believe we may see lower gasoline prices in the next six or sixteen days, but prices some 60 days from now will be much higher. If last week’s gasoline futures’ quote of $1.335 gal represents the Winter wholesale bottom, one can expect a price bounce of about 40cts gal, based on typical early Spring tides and twenty years of human nature.

   I’ll have some thoughts on ethanol and the impact that the President’s initiatives will have on nationwide fuel prices in a later post.  This is a product that clearly has a bright future for U.S.  producers, but there are many questions as to the course and the costs.