Sitting on a park bench. Eyeing little girls with bad intent.
The words are from Jethro Tull, but the couplet could describe the public’s viewpoint of Big Oil these days, and I suspect that the next few days will bring a crescendo of Big Bad Oil stories, and watch-your-wallet exhortations.
My pledge in this column has been to weigh in objectively on this noise, without apologizing for producers or consumers. Herewith, some thoughts going into the peak driving week:
Crude oil prices hit $70.50 bbl for a brief moment this afternoon before backing off to close at $69.57 bbl. Big deal. It does not mean that you will be paying more at the pump this Summer.
Gasoline decoupled from crude this Spring when bulk fuel prices advanced to more than $100 bbl even as crude remained below $65 bbl. It may decouple some more in the next eight weeks and be outperformed by crude. We need refiners to run more crude to produce a gossamer thin safety net in case of hurricanes, and running more feedstock could fortify crude values at the expense of gasoline prices.
Gasoline prices will begin July 4th week about 25cts gal below where they were for Memorial Day weekend, and perhaps 10cts gal above where they were last year. The devil, as always, is in the details. Despite all of the noise, all of the news’ stories, and all of the worry, every state now finds motorists paying less than 10% more than was paid a year ago.
This varies from states like Delaware, Maryland and New Jersey where prices are a few pennies lower than July 2006, to states like Colorado, Wyoming, Montana where prices are up by 25-30cts gal. But most parts of the country have about a dime’s worth of difference, at best (or worst).
July Myth & Legend
U.S. motorists use more gasoline in July than any other month, and one might think that behavior would translate into an especially volatile tradition for July pricing. However, that is not the case, and it evokes the suggestion that perhaps the most zealous traders take their holidays in this seventh and hottest month.
More often than not, gasoline values spend July simmering, rather than overheating. The huge Gulf Coast spot market - - where much of the trading is conducted - - saw a price rise last July of just 4.3cts gal, or 1.9 %. In 2005, there was a bolder move, with unleaded up 17cts gal or about 11.7%. But wholesale gasoline prices rose less than 8 percent in 2004, and by under 4 percent in July 2002, and values fell by anywhere from 12 percent to 20 percent in the first two years of the decade. The Gulf Coast performance is mirrored in other markets, OPIS data shows.
Once again, I’ll disclose that knowledge of wholesale markets is the secret sauce that enables one to gauge direction of retail markets. Here’s how nationwide retail prices have performed in each July this decade:
End June End July
2006 $2.8895 gal $3.005 gal
2005 $2.2070 gal $2.284 gal
2004 $1.9070 gal $1.896 gal
2003 $1.4878 gal $1.523 gal
2002 $1.3887 gal $1.412 gal
2001 $1.5243 gal $1.395 gal
2000 $1.6536 gal $1.529 gal
The direction in July is uncertain, or even counterintuitive, but history underscores that it is one of the least likely months to see a huge fuel price surge. A July hurricane could wreak havoc with this tradition, but can you remember a July major storm striking the Gulf or East Coast?
Some Notes on Supply
We begin the second half of the year with about 21.2 days’ supply of gasoline. That compares with 22.5 days last year; just under 23 days in 2005; and about 22.4 days in 2003 and 2004. So, we’ve operated without a safety net for most of the decade when it comes to peak driving season. And, the days’ supply figures are calculated against recent demand, which many observers believe is continually overstated.
Refineries appear to be getting back on their collective feet, just in time. Total crude and feedstock input to refineries last week was 15.6-million b/d. In the first four weeks of July 2006, input averaged 15.9-million b/d, so if processors restart another 300,000 b/d of equipment, we’ll be back to what passes for normal these days.
Survey says . . .. public lacks knowledge on key energy issues . . .
A just completed survey by the American Petroleum Institute (API) concludes that most U.S. adults "have a fundamental lack of knowledge" regarding key energy issues such as supply and demand and the role energy companies play in getting product to the market place.”
Duh? I wonder why. Could it possibly be attributable to the subjective mien with which companies, and associations, manage information to the press and the public? Petroleum companies are not singular in their desire to spin-and-manage information rather than disclose it - - that is one of the pillars of corporate media relations in the last 30 years.
Nevertheless, the survey findings are worth reading. Ignorance is not a virtue when it comes to weather, politics, and sports, three of the four horsemen (with gasoline prices!) of the information apocalypse. The API study found that the public greatly overestimated the U.S. dependence on crude imports from the Mideast. People also view alternative fuels as much more of a panacea than piecemeal solution.
But will anyone calculate that a survey conducted by API (through a polling group) is objective and beyond reproach? I think not, regardless of the merits of the findings and the intentions of the institute.
Much of what comes out of the corporate world these days, is (in the words of Dow Jones columnist and resident iconoclast Jim Murphy) pure “piffle”. The oil business is no exception. Consider this press release from Chevron, which is one of the warm & fuzzy oil companies.
Chevron's Lubricants University, an online training resource offering information on technologies and trends in the lubrication and maintenance industry, announced that archived issues of Lubrication magazine are now available free of charge on its site - www.LubricantsUniversity.com.
Stop the presses! Larry King may be calling any moment now.