Happy Groundhog Day to one and all! Some day, I’ll share with readers the true story of how my fraternity - - Tau Kappa Epsilon - - once stole “Punxsutawney Phil” back in the ‘70’s. The poor dead rodent ended up in the TKE freezer for a Mixer. But that story is for another day.
Today, I’d like to measure U.S. fuel markets and get a sense of where we may be heading in the next ninety days, and why January 2007 was such an extraordinary month. I beat the “bipolar market” metaphor to death some times, but the last 30 days have been Sybil-like with incredibly excessive mood swings.
For example: If you took January off, and studiously avoided all contact with global oil markets, you returned and found prices very similar to where they ended 2006. But you missed one heck of a roller coaster ride.
OPIS GASOLINE PRICE SCORECARD (www.fuelgaugereport.com)
Year Retail Price Daily Demand Estimated Daily Gas Bill
---- ------------- ------------ ------------------------------
Current $2.164 gal 382-million gal $827-million
2/2/2006 $2.355 gal 377-million gal $887-million
2/2/2005 $1.908 gal 371-million gal $708-million
2/2/2004 $1.621 gal 362-million gal $587-million
2/2/2003 $1.514 gal 341-million gal $516-million
2/2/2002 $1.120 gal 341-million gal $383-million
Crude oil futures ended 2006 at $61.05 bbl, sunk to a 20 month low of $49.90 bbl and then bounced all the way back to $58.14 bbl in January alone. Gasoline (RBOB futures) ended last year just above $1.60 gal, plunged to about $1.335 gal, and began February at $1.525 gal. There was a smooth symmetry, with prices reaching their nadir at midmonth with plenty of noise on the front and back ends. If you were fortunate enough to buy say 25,000 bbl of crude at the low point, you had a tidy profit of over $200,000 before Groundhog Day.
This volatility occurred despite inconsistent headlines and spotty fundamentals. It also occurred on the coattails of a huge upsurge in the amount of “paper” futures contracts traded on the various exchanges. The New York Mercantile Exchange blew through all previous volume records for crude oil, RBOB, and heating oil, and did so regularly without regard for the direction of prices.
All of this is relevant because February is traditionally a transitional month for physical supply & demand. However, that may not mean much this year. The larger the paper markets (the financial futures’ exchanges) become, the more likely it is that futures will move in anticipatory rather than reactive fashion. So, February 2007 may reflect the vision that trading entities have for March and April.
That collective vision may be loaded with excess bullish sentiment, representing the polar opposite of the pessimism that prevailed in the first 20 days of the year. Refinery maintenance is turning out to be heavier than expected, and the devil has surfaced via some fires and other events in January. Winter temperatures are finally drawing down heating oil stocks, and diesel demand is consistent thanks to a strong economy. And the always ornery switch from Winter blends of gasoline to Summer blends will catalyze March physical trading. The Winter spec contract will disappear from futures’ screens less than twenty business days from now.
And that is where the law of averages may come into play. The prevailing wisdom is that $49.90 bbl was the bottom of the first half 2007 crude market. An average rally, based on more than 20 years of NYMEX history, would imply at least a flirtation with $65 bbl crude. And if the mid-January low of $1.335 gal was the bottom for gasoline futures (and I think it was), then an average rally would target a Spring futures’ contract in the $2.00-$2.10 gal neighborhood.
For retail prices, that translates into a nationwide average unleaded pump price of perhaps $2.50-$2.60 gal.
One element to watch closely: Gasoline demand so far in 2007 is off the charts in so far as the “lift” from last year. Gasoline demand in the last four weeks is 3.4 percent above the same period in 2006. Current demand estimates are almost certainly an overstatement of real demand. But if the “lift” is just half right - - say demand is up 1.7 percent - - we will see much higher numbers.
Ultimately, I suspect demand will be up about one percent. But gauging this market isn’t about fundamentals. To predict oil price upswings based purely on supply and demand is the equivalent of choosing the Bears over the Colts because the former is predator and the latter is prey. Many other more sophisticated factors are at play.
Footnote: Diesel prices at the pump have been relatively flat in 2007 and today finds the nationwide average at $2.527 gal, down 15cts gal from end-December, and about 6cts gal below the same day in 2006. My personal Kung Fu Master (an expert on technical analysis of oil markets) believes that we may be closer to the annual lows for diesel than the highs, but suggests that 2007 will see a lower peak and a higher trough for this product. I tend to agree and will be speaking about this issue on Superbowl Sunday at the National Biodiesel Conference in San Antonio, Texas.
And now for a special note: I was asked by a number of TV networks this week if I would comment on the new “Terror-Free” gasoline station effort that was launched in recent days.
The story below appears in this Monday’s Oil Express newsletter and was written by the finest investigative reporter I have ever had the pleasure of working with, Carole Donoghue.
The story, as well as the entire realm of anti-terror efforts in any business, merit your consideration. If U.S. citizens want to combat regimes that use oil revenues to fund terrorism or anti-American escapades, there is a simple way to support that effort: use less fuel. It is virtually impossible to identify fuel that somewhere in its journey from wellhead-to-the-nozzle is handled by entities at odds with American ideals.
Claims to be investigating jobber and C-store chains for links to Middle East crude
Conservative activist is power behind new “Terror Free Oil” station
It makes for a catchy story -- a new, “Terror Free Oil” station will open Feb. 1 near Omaha, Neb. The “Terror Free” logo appears on two red, white and blue canopies, and pump signs urge Americans not to buy to gasoline made from Middle East crude.
But there’s a lot more to the story than the articles which ran last week on C-store Web sites, reprinted verbatim from an ABC TV affiliate without any further investigation.
The “Terror Free Oil” station will be the first of a number of similar outlets across the U.S., claim those involved with Coral Springs, Fla.-based Terror Free Oil Initiative. They claim also to be looking at issuing a co-branded Visa, with proceeds “that will go to fight terrorism,” and may issue bumper stickers with pictures of Osama Bin Laden in exchange for a certain number of receipts.
“We believe that we are financing our own demise by purchasing crude from the Middle East,” said Joe Kaufman, a spokesman for Terror Free Oil. “We’d like to avert another 9/11 if possible,” he told reporters.
Kaufman has told various news media that the “Terror Free Oil” station will be supplied by Sinclair. He did not respond by deadline to detailed questions posed by Oil Express about his financial backers and his certainty that the station will not sell any crude produced from the Middle East.
On his Web site, Kaufman says Sinclair is a brand that does “not contain Middle Eastern oil.”
However, Sinclair says it buys oil not just from the U.S. and Canada, but also on the New York Mercantile Exchange. “It’s a basket of crude oil. We cannot be sure where the conglomeration of the product comes from,” Sinclair regional manager Dalton Kehlbeck has said.
According to Kaufman’s Web site, Amerada Hess and Russian oil firm Yukos do not buy oil from the Persian Gulf. But the rest of the U.S. refiners, such as Shell, Valero, Chevron, BP and ExxonMobil -- and chains such as Sheetz, Pilot and Speedway -- are all named as companies “that finance terrorism by importing oil from the Middle East.”
The Web site notes that it is also researching other companies to see if they purchase fuel made from Middle Eastern crude, too. On that list, Kaufman names several jobber and C-store chains, including Adcock Petroleum, Gate Petroleum, UniMart, Holiday Station Stores, Casey’s, Kum & Go, Thornton Oil, RaceTrac, and Riggins Oil.
According to the site, Terror Free Oil is even mulling a marketing campaign involving other retailers. The pitch: It will help them increase their market share and reward them for not using Middle Eastern oil.
“This program will include signs, bumper stickers, media appearances of terrorism financing experts, Internet campaign, etc.,” says the Web site. “We are a non-profit organization working to improve our national security and do not require financial compensation. There is no downside for your company and no cost other than the minimal cost of signs and stickers. The upside to your company is a possibility of a substantial increase in market share and corporate profits.”
Pump signs to be displayed at the Sinclair station say: “Did you know that when you purchase gasoline from most gas stations, you are helping to finance terrorism? Here at TFO, we only use gasoline derived from companies that purchase their crude oil from, non-Middle Eastern countries. Rest assured, when you buy TFO gas, you are assisting in the global war on terror.”
Kaufman is a Conservative activist and blogger who has made it his personal mission to crusade against Muslim groups in the U.S., many of which he accuses of being terrorists.
In late 2005, a religious retreat planned for young Muslims in a Florida town had to be relocated after Kaufman claimed on one of his Web sites, AmericansAgainstHate.com, that it would be a “children’s jihad retreat.” His Web posting included computer-altered images of masked terrorists standing in front of the proposed site for the retreat and a claim that one of the speakers at the retreat was a recruiter of terrorists with ties to Al-Qaeda.
After the posting, the Presbyterian center that planned to host the camp received e-mailed threats -- one organizer was told her body would be painted with pig fat and set on fire. Kaufman has claimed that he has not found a single mosque in Florida that is not linked to terrorists, according to the St. Petersburg Times.
Kaufman, co-founder of the Republican Jewish Coalition of South Florida, was also behind the campaign that recently forced Sen. Barbara Boxer, D-Calif., to rescind an award she gave an Islamic activist in her home state because of his connections to an American Muslim civil rights organization, the Council on American-Islamic Relations (CAIR). Kaufman has said that it is his goal to shut down CAIR
Kaufman has links to a number of right-wing groups and in the past has expressed sympathy for Jewish extremist Meir Kahane, who was assassinated in 1990 and whose organizations have been listed as foreign terrorist groups by the U.S. State Dept. According to a Florida spokesman for CAIR, bloggers like Kaufman breed hate and are “a clearinghouse for defamation and attacks against Muslims.”
Kaufman sees it differently. “I’m assisting in the safety and security of the American people,” he told the newspaper.