It is now safe to predict that when the ongoing second quarter ends Saturday, the fossil record will show an all time quarterly high for gasoline prices. As of today, the quarterly average retail price has been $2.9961 gal. It may ease just a bit between now and the weekend, so a $3.00 gal average, however tantalizing, is probably untouchable for now.
A sense of history for the acceleration of energy prices in recent years is warranted.. The U.S. did not see a nationwide quarterly pump average of $2.00 gal or more until the second quarter of 2005. In other words, it took 100 plus years of fuel consumption to get to $2.00 gal but it then took two years to be knocking on the door of $3.00 gal.
Retail prices today average $2.978 gal, about 13cts gal above where they were a year ago, but almost precisely 25cts gal below Memorial Day weekend numbers. There are even some states - - - Delaware, Maryland, Massachusetts, New Jersey, and Rhode Island -- where the current price is below where it was on June 25, 2006.
Coach versus First Class
What’s unique about the present pricing landscape? How about the great distance between the low prices in given markets and the high major oil company prices?
The distance complicates anyone intrepid enough to make a price prediction for the next few weeks. Price leaders like Arco, Safeway, and Costco are below $3.00 gal in some markets where major brands are charging $3.25 gal. Even the most arrogant brand cheerleader will acknowledge that most motorists will only pay a nickel or so more for the best brand name. My hunch is that these high branded prices will ease, and the low unbranded numbers will trend slightly higher between now and July 4th week.
In the News . . . .
Washington is suddenly aware of the lack of transparency that is part and parcel of at least a portion of energy trading. Most of the dialogue is focused on the alleged gaming of energy markets by hedge funds such as the now defunct Amaranth Advisors, which lost about $6-billion in natural gas markets last year. A U.S. Senate report criticized the lack of oversight by the Commodities Futures Trading Commission (CFTC).
But what about trading that does fall under the CFTC purview? I ask that question after analyzing some CFTC data this weekend on crude oil and refined products’ futures trading.
The most recent data from the CFTC indicates that the explosive growth - - and the tendency for new financial players to bet on higher oil prices - - - continues. This speculative segment of the market gets little public scrutiny, but I would argue that in recent years, it has been a steroid that has generally inflated the entire complex. It may have an opposite effect down the road, but for now, the notion of money chasing money has played a key role in sending oil values skyward.
The CFTC data tracks the large speculative traders who are required to report their positions each week. Those players - - sometimes referred to as ‘the funds’ - - funneled more money into the market last week, and most of the managers have placed bets on higher prices.
Those speculating on higher prices (read: holding long positions) in gasoline blendstock futures held an aggregate position representing about 49.4-million barrels of f RBOB (the blendstock that is the cornerstone of East Coast finished reformulated gasoline) last week. Those willing to hold short positions (betting on a market downturn) held an aggregate position of just 8.2-million barrels.
Translation: Among big speculators, or high rollers, there are six speculators betting on price appreciation for every speculator betting on an ebb tide.
The same sort of imbalance - - where there is much more money bet on price appreciation than depreciation - - is witnessed in the crude oil pit as well. But one doesn’t see how truly compelling these numbers are unless one compares them to historical levels of say five or ten years ago. The amount of money at risk in oil futures’ markets is many times what it was when the decade dawned.
The bullish bias among financial trading houses doesn’t surprise me. Most of the rhetoric has been skewed toward cheerleading, with the hyperbolic $4 gal reference getting much more mention than a $2.00 gal prediction.
Markets also move up, not just because buyers outnumber sellers, but also because would-be sellers are afraid to sell, given the texture of the market and the incredible risk that comes with hurricane season.
If we get to the “G” letter among named storms, the tempest will be called Gabrielle. A better name, given the circumstances, might have been “Godot”. Speculators could be waiting for Godot in the next six weeks, and have the same disappointing reaction that I did when I read the Beckett piece in high school. To quote Wayne & Garth: Hello?
Pricing Peeve of the Week
Next month, I’ll be speaking at the Oregon Petroleum Marketers’ meeting in beautiful Sun River, Oregon. It’s a terrific venue, particularly for a guy from a state like New Jersey, where tank farms outnumber actual agrarian entities.
But I’ll be driving an intermediate size car (whatever that is) some 480 miles from San Francisco to Sun River, and at 20 miles per gallon, I calculate I’ll need about 24 gal. If I was able to save say 15cts gal by planning my interstate exits appropriately, I’ll have an extra $3.60 for some of those Mt. Ranier cherries that are in season during July.
Notwithstanding those tasty Ranier cherries, I’m not all that motivated about saving $3.60 on a trip that will probably see on road fuel costs of about $75. But here’s what gets me:
I’ve looked through the panoply of San Francisco hotels and found that I can find 3 ½ star locations for about $150-$300 per night. With a few phone calls, I was able to find a comfortable and strategic location for three nights in the $160/night range.
But God forbid one should have to park a car overnight in town. Every single hotel location I’ve looked at charges $40 or more for parking at the hotel or in an affiliated garage.
Is there a city statute to this effect? Do the Hilton sisters park the cars? Who sets these rates? It will cost me nearly twice as much money to park my vehicle for three nights as it will to drive north to Oregon. Nancy Pelosi, are you listening?