Today was a particularly annoying day. A couple of “analysts” were cheerleading a new bull market in energy on some cable broadcasts, and I do not concur with the precious insight that comes with owning oil futures, or managing the positions of clients who are hoping for higher numbers (I believe the quoted analyst is suspect of talking his/her position).

   But first, here is the requisite Friday scorecard. Crude oil (West Texas Intermediate or WTI blend) closed at $71.09 per barrel today, up $1.26 bbl for the day, and nearly $2.50 bbl above the weekly low posted when Hurricane Dean bypassed Louisiana and Texas Gulf Coast oil assets. Today’s close is more than $21 bbl above the 2007 low, and it is about $7.75 bbl below the 2007 high.  The price is some $30 bbl below the target of the “super-spike advocates”.

    The nationwide price for regular unleaded gasoline today was $2.768 gal, down 1.2cts gal from yesterday, and 14cts gal below last year. Many many areas, however, feature discount gasoline selling for about 20cts gal below average numbers as a first class/coach system remains entrenched for over the road travel.

What the Bulls are Saying, and what they have wrong  . . .

   This is my first chance to comment on demand statistics released on Tuesday and Wednesday by MasterCard and the Department of Energy. (I was at the Monmouth Park racetrack Wednesday, betting the ponies).

   To describe the MasterCard report as “flawed” is akin to characterizing the Atlantic Ocean as moist.  The statistics, garnered through the hardly priceless process of tracking millions of credit card transactions throughout the U.S., suggested that consumer gasoline demand advanced by 4.2% from the previous week, to a 2007 record of 10.25-million bbl per day of fuel (or about 431-million gallons per diem). This number could be accurate - - if every person of driving age idled their car in a collective effort to fortify oil industry profits.

   Meanwhile, the Department of Energy sported an all time record gasoline demand number of 9.762-million bbl per day or 410-million gal per day.

   Both of these numbers were temporarily, but dramatically, inflated by business and consumer behavior last week. Gasoline distributors and dealers no doubt purchased some extra gasoline ahead of what was to be a hurricane development weekend. Some motorists in Texas and Louisiana probably filled up their tanks. But the trend remains the same - - real gasoline demand peaked around July 13 and it has been steadily drifting lower.

    One of the talking heads that guested on CNBC suggested that gasoline demand was up because people were feeling good about the economy and that there were no longer worried about credit, and the liquidation of commodities in order to raise cash.  I think that neither view is accurate.

The Outlook Between Now and Labor Day Weekend

   If I could borrow a sports metaphor to describe the first 235 days of 2007 fuel markets, I would opt for Arena Football.  There has been tremendous action and lots of scoring. (Charlie Sheen might have been an appropriate reference as well)

   I don’t believe this metaphor is necessarily accurate for the next 130 or so days. The big moves (both higher and lower) have probably occurred for 2007.  There was a huge downdraft last year in September and October, and it wasn’t event-driven. We may muddle through average retail gasoline prices between say $2.50-$2.80 gal for the remainder of the year.

   In horse racing parlance, the “chalk” prediction that I made earlier this year was that oil prices would once again get “sloppy drunk”. The height of that drunken disconnect with reality occurred in early May on the West Coast; around Memorial Day on the Gulf and East Coasts; and in mid-July in the heartland. Those markets sobered up, and even had a hangover in mid-August, but have completed much of their Summer rehab stint.

   I suspect that the huge differences between major branded gasoline and the discount sales at the aggressive chains (ARCO, Costco, QuikTrip, RaceTrac, et al) will narrow, and they’ll narrow as the higher prices move lower. That trend may account for much of the slow drift in fuel prices in the next few weeks.

Weep Not for Refiners

    Sloppy drunk investment and speculation in gasoline led to pure bacchanalia for refiners earlier this year. Let me explain:

   Confining my analysis to this decade, the refinery renaissance didn’t begin in earnest until 2004.  From 2000-2003, the average distance between gasoline and WTI crude was about $7 per barrel, or 16.7cts gal.

   In the sloppy drunk 2007 peak periods, we saw gasoline fetch about $36 bbl over crude in the northeast (5/17); $47.20 bbl at the Gulf Coast (5/17); $45.21 bbl in the Oklahoma/Kansas refinery cluster (7/10); $44.99 bbl in Chicago (7/9); $51.40 bbl in southern California (5/2); and $51.87 bbl in the Pacific Northwest (5/11).  When gasoline prices plunged in August, those margins dropped to $7.80-$16 bbl at their worst, and they have subsequently recovered to $11.20 bbl (the Gulf Coast) all the way up to $26.75 bbl (Oklahoma and Kansas) as of today.