News item . . .
The nationwide retail gasoline price dropped overnight after setting an all time record of $3.227 gal on May 24.
Don’t get too excited. Prices dipped by only 0.2cts gal nationally, and perhaps the largest decreases were a penny or so across some southern, western, and Midwestern states. It’s not yet time to go to the polo pony auctions, or commit to that trip to the south of France. We are most likely to see what we call in the industry “congestive prices” in the next few days. That’s a euphemism for saying we’ll see some increases and some decreases, but all in all, it will be a wash between now and the end of Memorial Day weekend.
I’m still holding to my prediction that we’ll see some moderation or perhaps a “giveback” in retail prices between now and the July 4th holiday. Most of the drops should occur in markets that have the most excessive prices - - Oregon, Washington, the Rockies, Great Plains, and Great Lakes states. But once the Weather Channel starts showing those “cones” that indicate the probability of storm paths, we’ll bounce higher on the fear that comes with Hurricane season.
This week saw wholesale prices, and specifically the huge futures and spot markets, bend but not break. All of this happened as Congress attempted to put a scarlet letter “P” (for profits) on the lapels of executives throughout the petroleum supply chain. Earlier this week, the futures’ markets retreated enough so that conspiracy theorists might stake a claim that public pressure had prompted evil oil traders to back off of high numbers. That theory was disproved on Thursday (and so far today) as a couple of modest refinery glitches (a nice catch-all phrase for petroleum engineers, I suppose) caused some concern in the bulk markets.
Truth be known, this week also saw a glut of nonsense and rhetorical spin that extended from the wellhead to the consumer’s tank. Herewith, let me vent:
- Traders, equity analysts, and investment strategists collectively tend to believe that high oil prices will not slow down the U.S. economy. They tend to cite “average” U.S. pump prices and maintain that this benchmark number represents an increase of less than 13 percent from last year. Yes, the collective U.S. is up only 13 percent, but I’m reminded of the example of the old man with one leg in an ice bucket, and one leg in a bucket of hot coals. “On average”, he should be very comfortable, a flawed logician might suggest. Retail prices in the $3.30-$3.50 gal range across the Pacific Northwest, Great Plains, and Great Lakes are enough to push demand lower in the next 30 days.
- Oil industry critics, meanwhile, choose to be obsessive about refiner profits for gasoline that have been close to $40 per barrel in recent weeks. But these observations are misleading. Yes, current margins are unprecedented. Producing reformulated blendstock yielded refiners a gross margin of about $36 bbl on the East Coast and about $40 bbl on the West Coast. Midwestern conventional gasoline fetched as much as $44 bbl over crude, and Gulf Coast gasoline refineries were the regional laggard with margins of only $33 bbl or so. Incredibly, the difference between spot gasoline in Texas and spot gasoline in Chicago was more than 50cts gal, or about $21 bbl. But paradoxically, these high numbers have been reached thanks to the struggle to get equipment working properly. As long as refineries continue to struggle and demand shows lift of one percent or more to 2006, these contemporary numbers may prevail. But a glance at Groundhog Day metrics is worthwhile for runaway bulls as well as refinery critics. Back then, gasoline sold for only about $5 bbl above crude, a fraction of the euphoric returns heading into Memorial Day.
In any case, here’s a scorecard for measuring this Memorial Day Friday versus previous kick-offs to the holiday weekend this decade. You’ll note that we are collectively spending more than twice as much on fuel as we paid as recently as 2001, 2002, and 2003, and of course for all of the prior years that aren’t represented in my quick and somewhat crude chart. We’ll probably use more than 400-million gal of gasoline perhaps today and Monday, compared with about 380-million gal on a midwinter getaway day.
SCORECARD - - MEMORIAL WEEKEND FRIDAY THROUGH THE YEARS
Year Retail Price Expense per Day
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Current $3.225 gal $1.28-billion
2006 $2.862 gal $1.13-billion
2005 $2.109 gal $837.9-million
2004 $2.051 gal $797.3-million
2003 $1.494 gal $583.6-million
2002 $1.403 gal $511.8-million
2001 $1.700 gal $590.3-million