If you listen to some of the hysterical rants and hyperbole in oil circles this month, you might conclude  that we are on our way to $80 bbl crude oil and $3-$4 gal gasoline. Do not believe the rhetoric and the scare stories. This particular rally is almost over, and as I’ve indicated before, the 2007 preseason spike is running very much according to the template I laid out about 100 days ago.

   Long before this rally began, I noted that the average preseason increase for gasoline futures in the last 23 years has been 57 percent. The winter 2007 bottom occurred at $1.335 gal, so an average increase, would translate to a spike of just over 76cts gal. This week, gasoline futures (technically, the blendstock contract known as RBOB) closed at $2.1288 gal.

   That represents an increase of about 79.4cts gal, or 59.5 percent. In my book, the market is pretty close to form. By the way, California is often the harbinger, or the canary in the coal mine for the rest of the country, and wholesale gasoline prices there have slipped some 8 percent below the 2007 peak in the last ten days.

   Once the trading community (which this year as in most previous years has behaved with the orderly mien of a European soccer crowd) perceives that a peak is at hand, there should be a wholesale gasoline plunge. The typical drop in the last 23 years has been 25 percent. The notion of gasoline futures shedding 53cts gal later this Spring might appear far-fetched at the moment, but be patient. In late January, most folks would have thought predictions of a 75cts gal increase to be delusional.

   Meanwhile, retail prices have escalated above $2.73 gal and with some regions yet to catch up to the wholesale trend, we probably will see $2.75 gal topped this weekend. But nationwide pump prices should not make an assault on $3.00 gal between now and say, the first satellite pictures of tropical convection this Summer.

Here’s the skinny on where prices stand at the moment, and how it compares to previous years:

                                OPIS OILMANAC –NATIONWIDE RETAIL GASOLINE

Year                                Retail Price                   Daily Fuel Bill

4/6/2001                          $1.462 gal                       $509.9-million

4/6/2002                          $1.404 gal                       $521.1-million

4/6/2003                          $1.624 gal                       $589.4-million

4/6/2004                          $1.770 gal                       $694.3-million

4/6/2005                          $2.228 gal                       $850.6-million

4/6/2006                          $2.597 gal                       $1.014-billion

4/6/2007                          $2.272 gal                       $1.085-billion

    Comment: The highest estimated daily fuel bill on record occurred last August 1 when Americans spent about $1.241-billion on gasoline. In all, we spent 51 days above the $1-billion per day mark in 2005 (post-Katrina) and 164 days there last year. We’ve surpassed that threshold for about a week so far in 2007.

Some other random early Spring musings . . .

-         - TV, radio, and print journalists need to spend less time obsessing with the crude oil price quotes witnessed every business day on the N.Y. Mercantile Exchange. That crude oil grade - - West Texas Intermediate, or WTI - - has become disconnected to other grades in world markets. Example: when the U.K. hostages were released this week, much was made about the “drop” in crude oil prices. Many grades, such as the benchmark Brent North Sea crude, actually moved up in value.  WTI is less relevant because of problems with refiners who typically process that grade. It’s the grade that will get quoted when folks talk about “the price of crude oil today” but until U.S. refineries get back into full gear, it is the Anna Nicole Smith of crude - - - not as newsworthy as the press makes it out to be.

-         I know it seems as though gasoline has been on a particularly violent roller-coaster ride, but 2007 has been calm compared to some previous years. Only five days in the first quarter saw intraday gasoline futures’ swings of more than 7cts gal, about half the number seen in 2006. Of course, the second calendar quarter commenced with a day that saw gasoline prices move by more than 10cts gal, so one shouldn’t conclude that volatility is history.

  -    A footnote on ethanol is timely. We’ve had the typical rising tide for gasoline, but it has overlapped   with a considerable ebb tide for ethanol prices. In Spring 2006, ethanol cost as much as $1.50-$2.50 per gallon more than gasoline blendstock. Last week, we saw spot ethanol prices slip below the wholesale price of gasoline in several markets. All things considered, gasoline blenders can pay about 50cts gal more for the ethanol component than they pay for gasoline blendstock, because of the various subsidies. When ethanol is priced close to the value of gasoline, it can actually suppress the finished price of the blended fuel. Politics aside, I believe that more ethanol this Spring and Summer could create some mild downdrafts on pump prices, particularly in the Midwest.   

-         Finally, an observation on the Energy Information Administration (EIA) report that was issued earlier in the week.   If you take the statistics at face value, you would conclude that U.S. gasoline demand is at 9.49-million b/d, the highest figure ever for a March week.  EIA staff are among the most competent people I know in government, but motorists are not using this much gasoline. The numbers have been overstated for some time.  Those with a vested interest in higher prices - - particularly Wall Street investment counselors who have a stake in crude or gasoline rallies - - will quote this figure, but it represents a quirk.  When all of the data is in, I believe we’ll find that first quarter gasoline demand was up about 1.5 percent from last year, and that sort of “lift” represents the most likely template this Summer.