Within the next week, we will see prices average $3.00 gal at the pump.

    Now, that I have your attention, let me qualify that remark. We’ll see average U.S. prices for diesel top $3.00 gal, but we will only see $3.00 gal or higher gasoline prices if a major storm strikes refineries in the Gulf of Mexico or Caribbean.

   You’ll have to be patient and cultivate your attention span to understand why we’re not once again on the brink of a more shock and awe for gasoline. After all, we reached an all time new high of $80.18 barrel for the closely monitored West Texas Intermediate crude oil futures’ price today. We also saw a just concluded OPEC meeting that had the cartel promise a smaller-than-expected production increase of 500,000 bbl per day. And we’re close to the peak of hurricane season with weather officials monitoring Tropical Storm Humberto in the Gulf of Mexico, while the trading community braces for another named storm - - Ingrid - -in the Atlantic Ocean.

   I’ll give a textual explanation of why $80 barrel crude doesn’t necessarily portend $3.00-$3.25 gal gasoline, but first let me present a hastily assembled chart. 

   The public and energy neophytes have difficulty understanding the connection, or disconnection between crude and gasoline/diesel because the former is quoted in dollars per barrel, while the latter two are converted into cents/gal. So, I’ve converted all of the numbers into barrels for an apples-to-apples comparison. In the case of some of the spot - - or bulk wholesale ex tax values - - I’ve rounded off the numbers.

   Product         Memorial Day Weekend Price   Today’s settlement

WTI crude                                  $65.20 bbl                                   $79.91 bbl

NYMEX RBOB                        $100.95 bbl                                  $84.67 bbl

NYMEX Heating Oil                  $81.44 bbl                                  $93.20 bbl

Gulf Coast Unl Gas                     $98.91 bbl                                  $86.52 bbl

California Gasoline                    $106.68 bbl                                 $89.46 bbl

Gulf Coast Diesel                        $88.20 bbl                                  $95.34 bbl

California Diesel                         $92.40 bbl                                  $94.08 bbl

    If you want to convert these prices into gallons, just divide by 42. But for now, you can see that t gasoline futures’ values as well as wholesale prices thrust near $100 bbl or higher some four months ago when crude was valued just above $65 bbl. That was what was so extraordinary about the Spring move - - - gasoline prices rallied independent of crude, and refining margins soared to levels 8-10 times what used to pass for normal. (You’ll recall that I’ve stressed that the “new normal” is the abnormal, or bipolar markets).

   Gasoline had a manic Spring as it was coming into season. Heating oil prices, and diesel prices are now within a few months of peak season, so that part of the barrel is the hot product. Wholesale diesel prices are anywhere from 5-40cts gal higher than they were on Memorial Day weekend.

Predictions

   With apologies to the great Gary Coleman, I have to once again invoke the title of his magisterial watershed television series - - Different Strokes.   There are different forecasts for the different segments and here they are:

   Crude Oil - - - Money continues to chase money and the oil-as-an-asset class phenomenon has caught a second wind.  If I really had the capability of accurately predicting crude oil price tops, I’d be playing Canasta with George Soros or exchanging witty pleasantries with Warren Buffet.

   I will note that the value of crude oil futures these days is an abstraction - -- the numbers are tied to investment flow, cyclical tides, and fear that weather or events can deliver an immediate price shock.

   Consider that U.S. production of the WTI blend that serves as the financial market benchmark is around 200,000 bbl per day. Then,  consider that we traded well over 600-million barrels of WTI crude on the NYMEX in the last 24 hours. It’s akin to a horse race with a $5,000 purse that gets $50-million of wagers on the outcome.

  Now that football has arrived (if one ignores the Giants and the Jets first meager efforts) I can lean on different metaphors. September and October have notably delivered tidal high water marks, and this feels like at least the Two Minute Warning.

   Gasoline - - Gasoline demand has dropped for three consecutive weeks, and in three days, a subtle but important specification change gets ushered in.  Marketers can sell slightly more volatile (cheaper-to-manufacture) gasoline, and it’s easier to find that product among offshore refineries as well.

   U.S. retail prices today averaged $2.815 gal, about 20cts gal above year ago levels. (For details, visit www.fuelgaugereport.com )   Without storms, we might see another 5-10cts gal of upside at the most. I have to caveat the hurricane threat here, and urge that you visit websites that show storm models.

  My favorite model is the spaghetti model where computers take a system and project the various strands that take it to continental or island landfalls. Some of the diehard bulls and cheerleaders have their own internal models (I won’t name any specific culprits, but you know who I am talking about!!). Some of these cheerleaders have a single piece of fettucine that heads from the Caribbean and proceeds directly to Houston or other refining centers.

   Once the latest storm threat passes, we may see pump prices drop with Autumn leaves. In a future column, I’ll talk about why cheap ethanol prices may hasten that outcome in the coming weeks and months.

  Diesel/Heating Oil - - Heating oil futures hit all time record highs today, and wholesale diesel prices are close to 2007 records, and beneath only the spectacular levels that followed Hurricanes Katrina and Rita in 2005.

   These are the products to watch in the next 100 days.  Refiners can currently make a lot more money manufacturing diesel than gasoline, but it’s the world’s fastest growing energy liquid. Prices aren’t just high in the U.S., but in Europe and Asia as well.  They are lofty by historical standards and subject to an “all dressed up with no place to go, yet” epiphany in the fourth quarter. But before that occurs, some shocks are likely for the fleets, mines, railroads, and consumers.

   You’ll soon commonly see $3.00 gal plus prices at truck stops across the country, and northeastern homeowners may get their first heating oil deliveries and pay $2.75-$3.00 gal.

    A postscript is necessary, however. One of the best indicators of how the commercial economy is performing can be garnered by following diesel demand trends. For the first time in many months, U.S. distillate demand (that includes heating oil, diesel, and similar industrial fuels) is below where it was a year ago (as represented by Department of Energy four week running average figures).