Within the next two weeks, Americans will see the first significant impact of the passage of the Energy Policy Act of 2005.  Daylight Savings Time will enable more motorists commuting home from work to see the higher prices in the light of day.

  The daily gasoline bill for U.S. consumers will surpass $1-billion per day by mid-month. Earlier this year, it was less than $800-million per day.

  But some caution is warranted. There is a tendency to get carried away when prices are changing at a rapid pace. 

  Keep Rudyard Kipling verse in mind this month.

     “If you can keep your head when all about you are losing theirs  .  .  .  Yours is the Earth and everything that’s in it “

   Oil traders lose their heads quite often. Their tendency to get caught up in the physics of crowd behavior is perhaps the greatest catalyst for market volatility. They will almost certainly lose the clarity of thought that comes with emotional detachment this month.  That will probably mean that gasoline futures - - valued at about $1.33 gal in late January - - will exceed $2.00 gal in the coming weeks. As I write this, they are flirting with $1.93 gal.

  I will reiterate that the gasoline futures’ price largely determines the wholesale price in every nook and cranny of the U.S.  Markets east of the Rockies tend to see wholesale prices nominally above the futures’ quote. Western markets can trade 25-50cts gal above the NYMEX futures quote.

The Numbers at a Glance

   Retail gasoline prices hit $2.433 gal this morning in our AAA report. For details and state-by-state numbers, visit the website at www.fuelgaugereport.com    Prices have surged 28cts gal in the last month and they are about 18cts gal higher than they were on this day last year.

   We will cross the $2.50 gal threshold within the next 7-10 days, and we could see average pump prices greater than $2.55 gal by St. Patrick’s Day.  With projected demand of around 390-million gallons per day later this month, that will push the daily payments for gas above $1-billion.  Despite all of the Sturm und Drang that has been attached to gasoline prices this decade, we have spent only a few months with nationwide price bills at such altitude.

   The final data is in on February 2007. The average retail price was $2.245 gal and demand was around 383-million gallons per day. So, the monthly bill just topped $24.08-million bbl, a modest increase from the February 2006 hypothetical invoice of $23.7-billion.

  March prices will cut a much more substantial portion of American spending power. My demand and price estimates (back of the envelope, mind you) put the likely March 2007 bill at about $31-billion. That would compare to a March 2006 number of $28.5-billion.

What To Look For In the Rest Of This Month

      This week’s gasoline increases in the global markets have been particularly impressive. They have occurred even as three or four percent of the world’s financial wealth has been liquidated in wild Wall Street, Tokyo, Shanghai, and Hong Kong stock sessions.  Gasoline’s wholesale gains of 15cts gal are the equivalent of a Wrigley Field hitter slugging two home runs on a day where the wind blows in from center. 

  Let’s stick with the baseball metaphor. It is wise to ask whether this rally is in the early, middle, or late innings.

  We suggested in January that February would see strong oil prices because increased liquidity has made the market much more anticipatory than in previous years. February was indeed a record month for refiners, if measured by prosperous refining margins. March will perhaps be the busiest month of 2007 as far as refinery maintenance goes and it also is packed with unit restarts. The extent with which these actions are performed without incident is the first pillar on which the March price performance will be built.

  The second pillar lies offshore. Gasoline import figures have been disappointing to those who prefer fuel stocks to be comfortable. The U.S. has by far the highest wholesale prices in the world, but it has been unable to attract enough inventory from Europe, South America, and Canada for most of the Winter.

  In some cases, this represents lasting change. Venezuela used to produce millions of bbls of gasoline each month for the U.S. East Coast, but it has contributed virtually no gasoline stateside in recent months. Prospects for a change in that status in March appear dim. Similarly, other countries like Mexico, some South American sovereigns, and even Nigeria, have siphoned off some of the gasoline components that typically get converted into U.S. gasoline. Gasoline blending has been much less brisk than it was in 2005 and 2006. This could change in March, particularly if high U.S. prices persist.

   Now, back to the baseball metaphor. Most of the available information suggests that “game time” was moved up this year, and it’s difficult to support the contention that NYMEX gasoline futures can soar some $20-$25 bbl above crude with no fuel specification changes, and a generally healthy refining sector. Also, sentiment has turned much more bullish and that’s a clear warning sign.

   On the other hand, it’s equally difficult to conclude that the rally is over. Imports may recover, but it will take many many arrivals of ships to convince companies that it is safe to sell. Gasoline output didn’t bottom out last year until April 7. We’re probably on an earlier schedule than last year, but truly comfortable production rates aren’t likely until the second half of the month.

  So, we’re stuck in the middle innings for wholesale prices, and that will make for an interesting March. We expect nationwide retail prices to surpass $2.50 gal this week, with West Coast prices hitting $3.00 gal in some cases. That will insure that the game is televised.