Yes, we are about to see $3.00 gal gasoline prices as an average, at least in the state of California. But no, this is not the beginning of the next fuel price apocalypse. But more on that in a moment.

   Note: You can keep up-to-date on this March Madness by visiting the website that OPIS produces for AAA.  Go to www.fuelgaugereport.com and you can watch the ascent.

   But first, let me note that below today’s observations,  I am reproducing some comments made exactly one month ago when I fled the northeast for some Caribbean sun. I repeat the column not because I want to engage in self-congratulation (I am not a ‘theater person’) but because the items cited that day are still relevant as we move into mid-March.  I have included some italicized comments where further insight is necessary. And if you’re wondering whether I would ever think about altering or reconstructing a previous post to appear prescient, the answer is that I would consider it, but have until now rejected such dishonorable urges.

   California spot gasoline trading went absolutely ballistic today, climbing the wall of worry that gasoline prices are prone to scale in helter skelter fashion. As I write this, the spot price of CARBOB blend (the gasoline blendstock to which ethanol must be added) is flirting with $2.50 gal.  That puts it at about $105 bbl, against a sweet crude price in the region of some $60 bbl or so.  Oh, to be a refiner on the West Coast, these days!

   Gasoline futures and most bulk spot markets east of the Rockies are up some 2-3cts gal today with wholesale prices in many other regions of the country closing in on $2.00 gal. Through the last decade or so, one would find that retail prices generally move to about 60cts gal above local wholesale prices. Perhaps 45cts gal of the eventual retail number represents tax and freight, and about 15cts gal reflects the gross retail margin.

   Hence, we are looking at a likely retail advance to some $2.60 gal or so in many sections of the country, but California is targeting a much higher number. This weekend, there might be many stations in the Golden State selling unleaded regular for $3.10 gal, and they might be making less than the normal wholesale-to-retail margin.

    This is a good moment to look at the physics of a typical oil price rally.

    Think of a gasoline price rally as a round of applause within an auditorium. It was quite easy to project some 60 days ago, that there would be polite or even raucous applause in the gasoline futures and spot markets in March. And much like the audience at the State-of-the-Union address, the participants often clap their hands together at a premature moment.

   We’ve moved well past those moments. The oil trading community, often prone to apoplectic mania in the best of times, has given a thunderous ovation in the futures’ sector and in bulk markets like Houston, New York, and Chicago. Meanwhile, California traders are in the process of delivering a standing ovation.

   The traders will eventually sit down and stop clapping. Most of the difficulties and potential calamities in the marketplace are reflected in the price appreciation. West Coast spot gasoline is up about $1.00 gal since January 20 and eastern numbers are up some 60cts gal.

   The problem for the West Coast, underscored in the previous column included below, is that it will not be difficult to elicit an encore.

   The bottom line: We’ll see retail prices rally some 10-30cts gal in the next few weeks in most sections of the country, but the $3.00 gal plus numbers should be limited to western states, and the auto rental return, where one can find $5-$6 gal prices during oil gluts.

February 7, 2007 Column

 I suggested on the first business day of 2007 that the West Coast was likely to see much higher gasoline prices sooner rather than later, but I didn’t expect that the surge would take place before Presidents’ Day. But we’ll see drastically higher pump prices in California and other Pacific Coast states shortly. The spot price for California gasoline hit $2.08 gal Friday, February 9. (it stands at $2.50 gal at presstime) When the President made his State-of-the-Union address, wholesale prices were about 50-60cts gal lower. (that difference is now 95cts gal to $1.05 gal) We’ve become used to 30 percent price moves in the oil business, but I’m not sure if we’ve had one against the backdrop of a Democratic Congress.

   So buckle up if you live in the Pacific Time Zone and get ready for a return to gasoline prices not witnessed since September.. There is plenty of panic on that coast, and the most difficult times for supplying the region arrive in the next six weeks. Street prices of less than $2.50 gal may disappear by the time you read this, and the $2.75-$3.00 gal price range is imminent.

   Why are we seeing a midwinter western spike?  As I suggested six weeks ago, the region is compromised by its distance from foreign refiners, but it’s also the area that sees the most extensive first quarter maintenance for refiners. It also includes a number of states that have seen consumer demand ricochet higher since last Summer when $3.00 gal plus numbers inspired some car pooling, cutbacks, and conservation from those folks on the margins of society.

   Meanwhile, refiners that are fortunate enough to have little or no maintenance for their West Coast plants are reaping the benefits - - as last week ended, the price of spot gasoline in southern California afforded refiners about $30 bbl over the price of Alaskan North Slope crude.(This margin has widened to about $45 bbl)  That’s robust even by western standards.

   The fire and explosion at Occidental’s Elk Hills crude oil field was a catalyst in the surge in the last 72 hours, as it inspired worries that some California refiners might have to cut runs until alternative crude sources can be found. But even under the best of circumstances, the region struggles to keep supplies comfortable and I believe this will be the background for the region into April.

   This really should be a western story. We’re still a few weeks away from the inevitable “petronoia” rally that will hit the rest of the country in March and April. Wholesale prices for gasoline throughout the Rockies, Midwest, Gulf Coast, and East

Coast are about 50cts gal lower than out west and this inequality might persist through February.

   And speaking of “petronoia”, I need to get one thing off my chest, and it involves a famous West Coast personality.  I coined the term “petronoia” back in the late 90’s, and there is CBS and NBC network videotape that validates my creation of this neologism. 

   But a screenwriter grabbed the term and inserted it (without credit) into George Clooney’s Syriana movie – an interesting but muddled concoction of international petroleum intrigue. I’ll forgive you this time George, but don’t pilfer any more words from the Pump Daddy, or we’ll have to settle things in the Octagon.