The 2007 driving season continues to represent the Summer of our disconnect.

    WTI crude oil futures traded for over $75 bbl today, and a number of world grades (remember: there are more unique crude oil grades than there are blends of finished gasoline) have surpassed $80 barrel. Yet, gasoline prices have drifted lower at the street level, and in some cases, they have plunged in the big bulk wholesale markets. What gives?

    In my opinion, the crude oil market is still inebriated with irrational exuberance within the investment community as well as among speculators, but gasoline is no longer sloppy drunk. From 1990 through 2004, a gasoline refining margin above $10 barrel was regarded as robust, and temporary. For various periods over the last few years, we have become accustomed to seeing gasoline trade at $30-$40 barrel over the price of crude. We saw these renaissance margins in the second quarter and early in July, but they have quite suddenly given way to more modest mark-ups. Simply put, gasoline margins have narrowed from say $30-$40 bbl to $12-$25 bbl in the last week, even as crude has climbed from $70 bbl to about $75 barrel.

    This epiphany for assessing gasoline prices - - when traders recognize that it is selling at an excess valuation relative to crude - - has not surprisingly occurred on the heels of sentiment that showed speculators overwhelmingly bullish about gasoline’s prospects. When 70 percent or 75 percent of the market’s participants are bullish, one should beware. Lesson learned.

    In the next few days, some coastal states may see the cheapest pump prices since early May. It is possible that pump prices of less than $2.75 gal may appear in states like Texas, Arkansas, Georgia, South Carolina, and New Jersey, for example. It is equally possible that these markets could move by 25-50cts gal or more in either direction in the next 60 days.

   There are approximately 48 days left in what the media and the trade has anointed as  the “driving season.”  Demand for gasoline after Labor Day will almost certainly drop by several hundred thousand barrels per day from the 9.6-million bbl per day figures of mid-summer.

   There are approximately 60 days left before U.S. gasoline specifications undergo a subtle annual change for consumers. With that change comes more supply for refiners, traders, marketers, and importers. Effective September 15, gasoline can be a bit more volatile. In layman’s terms, that means that refinery recipes can feature cheaper components (that could create ozone problems in Summer) and it will be easier to find U.S. spec motor fuel among the dozens of foreign refiners that peddle their hydrocarbons to American consumers.

   One other clock is ticking as well. Hurricane season is moving into its second or third inning, and there has been no score so far (in 2005, we had five named storms by this point). I’ve mentioned before that the oil pricing structure anticipates at least some collateral hurricane impacts in deepwater oil production zones, or within the Gulf Coast refinery row that stretches from Corpus Christi east to Pascagoula.

   All of this means that the remainder of the “driving season” and meteorological summer will be choppy and somewhat unpredictable. Like my favorite boxer, Smokin’ Joe Frazier, retail pump prices may bob and weave their way through the next 60 days, providing an elusive target for anyone foolish enough to render predictions that advertise precision.  Nationwide numbers eased recently to $3.04 gal and it would not be surprising to see average prices slip below $3.00 gal for the next few weeks. The next 40 days could see prices between $2.75-$3.25 gal; a large range, but some 75cts gal to $1.25 gal below many of the prophesies of the Wall Street pumpers.

   The worst of the early July spike that gave citizens of Nebraska, Kansas, the Dakotas and some Great Lakes’ states a dose of Mediterranean-like prices appears to be over. Wholesale gasoline prices in the Midwest soared to $2.60-$2.80 gal in the wake of the late June Coffeyville, Kansas refinery flood and several unrelated heartland refining glitches. That spike has given way to more palatable wholesale costs of about $2.30 gal in recent days. Meanwhile, Gulf Coast gasoline has slumped to just a few cents over $2.00 gal, or something in the realm of $85 per barrel.

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   I am traveling, so I have not had time to read the Goldman Sachs report that details why crude oil prices may inevitably be headed to $95-$100 barrel by year’s end.

   First, let me offer a couple of observations.

   In the interests of full disclosure, I have to admit that I am jealous of a company which saw the average employee in 2006 bring in more than $600,000 in compensation. I also have incredibly high regard for the research that such an organization brings to bear.

   If one were to ask twenty five oil traders to name the two most influential companies in oil trading, I would suspect two of the top three movers & shakers would be Goldman Sachs (partially through its affiliate J. Aron) as well as Morgan Stanley. These companies have much more to do with the daily, monthly, or quarterly price of oil (in my opinion) than ExxonMobil, ChevronTexaco, or ConocoPhillips, for example.

   But I would think that in the interests of full disclosure, Goldman would reveal that perhaps no other investment bank has as much riding on high prices as they do through their various entities and joint ventures. Their conclusions merit coverage, and they may point to many appropriate scenarios that would lead to $100 barrel (or higher) prices for crude oil. But they represent the collective thinking of an entity that may be incapable of predicting what they don’t want to happen. There are convex, concave, and purely cloudy lenses in the optics of analysis, and this may be one such distortion in the energy funhouse.