Presidents’ Day weekend saw a very quiet, but ultimately quite significant end for a 40 day streak.

    Retail gasoline prices are now higher than they were a year ago, and it looks as though that year-over-year trend will widen in the next couple of weeks. It is currently a modest difference, but Americans are on average paying about 1.2cts gal more for their fuel than they were on the same day in 2006. Thanks also to demand that has been extraordinarily brisk, the daily U.S. fuel bill is now running about $17-million more each day than a year ago.

   There are huge regional differences. If you live along the East or Gulf Coasts, you’re probably seeing retail prices a bit cheaper than last year. If you live in the upper Midwest or the Rockies, prices are quite similar to where they stood on Presidents’ Day 2006. If your car fuels up on the Pacific Coast, it’s likely that you are paying 20-30cts gal more for gas this year than last.

   On a bottom line basis, the average price for retail gasoline and diesel is higher than it’s ever been on any Presidents’ Day. For details, visit www.fuelgaugereport.com

  So, the dividend of cheap oil prices didn’t last long.  This may impact the thus far euphoric financial markets which have marched to record highs, in part because of the inaccurate perception that energy costs were trapped in a severe downdraft.  A reminder to regular readers of this blog: Think of crosswinds when you visualize the 2007 market - - this will be a capricious year.

  One problem: the financial community has a fixation with the price of crude oil, and specifically with the West Texas Intermediate (WTI) crude that is the benchmark of the N.Y. Mercantile Exchange. As I write this, the price of crude oil is actually about $1.30 bbl lower than it was last year. But the price of the finished products - -  -whether it be gasoline, diesel, or jet fuel, is generally higher than last year.

   It’s been a rough February for refiners who have seen fires, mishaps, and various other “events” dot the country, but those woes have fueled some froth for processors fortunate enough to run smoothly. A West Coast refiner can run crude oil that costs $57 bbl or less, and sell gasoline for about $82 bbl and diesel for about $79 bbl.

   So where do we go from here?

   The evidence suggests that prices for gasoline, and for crude oil, will be considerably higher some 40 days from now. In 2006, we saw retail gasoline fetch $2.244 gal on Presidents’ Day, but that gave way to $2.37 gal by mid-March and $2.53 gal as April fools rushed in. Ultimately, the 2006 rally took retail prices to $2.78 gal by April 15 before hitting a nationwide Spring high in the $2.90’s in early May. June and July provided congestion and consolidation before $3.00 gal was topped in the first ten days of August.

   Last year’s trajectory was severe, and I doubt whether the market can match the 70cts gal of increases that occurred in about 70 days. But it might take something extraordinary to avert at least a 30-35cts gal run-up in the next 40 days. A performance that only matched half of last year’s mojo would put nationwide retail prices at $2.55-$2.60 gal by early April, if you are keeping score. And as I suggested on the first business day of 2007, the West Coast has a much different dynamic from the rest of the country. States like California, Oregon, Washington, Nevada, and certainly Hawaii all have the potential for street prices to rally beyond $3.00 gal.  Many of those states ran into “demand destruction” when prices topped $3.25 gal in 2006, but the exact number where motorists will drive less in 2007 is an unknown.

Some other Presidents’ Day perspectives:

-          The worst is over for U.S. heating oil prices this Winter.  Wholesale prices are almost identical to where they were a year ago, but they should stumble in the next few weeks.

-          Diesel price increases should also be more temperate in the next 30 days. There is a tendency for the trading community to oversell any product from the middle of the petroleum barrel - - including heating oil, diesel fuel, and jet fuel - - and I expect that a long overdue sell-off is looming in east of the Rockies’ markets. The West Coast is a different story - - it should be tight for most products into the Spring.

-          This week’s Energy Information Administration bulletin on petroleum statistics will warrant special scrutiny. It may be one of the last chances to see gasoline demand of less than 9-million bbl per day in the U.S.   Daily demand numbers in excess of the 9-million bbl/day number were a rarity until this century, and last winter saw five straight January and February weeks with demand under this number.  If one believes the statistics, then motorists have been gobbling up fuel in 2007 at a rate more than 3 percent higher than last year.

OPIS Oilmanac  - - February 19 through the years . ...

Year                             Avg. Retail Price               Daily Gasoline Bill

2001                               $1.493 gal                           $510-million

2002                               $1.220 gal                           $411-million

2003                               $1.465 gal                           $532-million

2004                               $1.643 gal                           $607-million

2005                               $1.896 gal                           $707-million

2006                               $2.238 gal                           $841-million

2007                               $2.256 gal                           $859-million