Alert the media. Gasoline prices are falling, perhaps not at the rocket-like pace with which they were launched, but by considerably more than the feathery drops that we have come to know and love. Ten states now have average retail prices of less than $3.00 gal and by the middle of next week, we should have at least thirteen additional states joining that club.
The answer to the question “why now?” is simple: wholesale prices struggled this week, and dropped anywhere from say 12cts gal in California to as much as 45cts gal in upper Great Lakes’ states. Not surprisingly, the states that saw the greatest spate of panic buying in late May, are now on the cusp of some real price relief.
At sub-$3.00 gal now are Alabama, Delaware, Louisiana, Missouri, Mississippi, New Hampshire, New Jersey, South Carolina, Tennessee and Virginia.
About to go beneath $3.00 gal are Arkansas, Florida, Georgia, Kansas, Kentucky, Massachusetts, Maine, Minnesota, North Carolina, Pennsylvania, Rhode Island, Texas and Vermont. There could be a few others as well.
Will this be covered with the same zeal and panache as the price spike? Probably not, I say. But the press and the investment community should hold those who predicted the clear cut march to $4.00 gal responsible. The difference between analysis and cheerleading is substantial, and the latter has its victims. For a great read on this subject, pick up a copy of David Denby’s book, American Sucker. It provides lucid and revelatory insight into what drives analysts into making predictions that are all about momentum and vested interests, with real research getting tossed in the trunk.
There is substantial catching up to do on the street, so I need not be Jean Dixon to make these predictions about lower prices (If I wanted “guru” status, I would use the term Swami Tommy). Based on the wholesale downtrend - - which has not captivated the country like Paris Hilton’s stay in the pokey or that drug-resistant tuberculosis guy – we are looking at another 10-15cts gal of price decreases, and perhaps more.
A rule of thumb is to take the average wholesale price and add say 60cts gal to come up with a retail target. Right now, wholesale prices have dropped to below $2.30 gal in California (down from $2.80 gal) and the Pacific Northwest has plunged from $2.60 or so to about $2.15 gal. You can do the math and figure that both of these markets are headed to numbers not witnessed since April.
The excess in other parts of the country is being wrung out even more. Chicago gasoline cost nearly $2.90 gal - - wholesale ex tax - - three weeks ago.
It costs about $2.10 gal today.
Gasoline available to ship to the Great Plains cost $2.75 gal in mid-May, but it’s worth about $2.25 gal today. I’m not a mathematician, but I learned my cipherin’ and gezinta’s from Jethro Bodine (remember . . . . four gezinta eight . . . . two times) and these markets are headed sharply lower.
Meanwhile In The High Stakes World of Oil & Gas Futures . . .
Werner Heisenberg taught us that it is impossible to measure one’s position and speed simultaneously -- the act of performing one or the other renders the other one or the other inaccurate.
We’ve seen this uncertainty principle at work in the field of oil analytics. Those with positions well calculated - - particularly those who are speculatively long or short or with clients similarly placed - - cannot competently predict oil price movements.
Oil and gasoline have slumped drastically, but there is nothing resembling a glut of either. Oil traders (critics say they are called traders, because the term pirates was already spoken for, and bottom-feeders is registered to the legal profession) typically overreact, and then they overreact some more.
Gasoline futures have now given up some 13.3 percent of their Spring “petronoia” gains. A loss of 25 percent is the average seen in the last two decades. That would target $1.85 gal or so for a futures’ bottom which would push some retail markets as low as $2.50 gal by July 4th weekend.
I don’t think we’ll get there. Next week may be a sloppy and weak period for gasoline, particularly at retail. But it’s difficult me to conclude that we have another 30cts gal or more of losses for gasoline futures.
See my June 1 post for reasons why this interval of pricing sanity may not persist too long.