Oil prices dropped today, and as per some unwritten rule, various wire service reporters  took the bait and directly attributed the decline to news that Turkey would pursue a diplomatic solution, rather than send troops into Iraq in retaliation for an ambush by rebel Kurds last week.

    If only the world were this simple. Geopolitics has been pushed to the background of this year’s record oil price rise, and I’ll repeat what I have said on several occasions in the last few days. The lofty prices have much to do with the “young Turks” on Wall Street, and in London, Tokyo, and other various world financial centers. The price action has little to do with the politics in Istanbul and Baghdad..

  ( By the way, where exactly did the phrase “young Turks” come from? As a child, I was fascinated by Turkey - - if you went to school during the Cold War, you may remember the brightly colored Turkey in the center of the maps for Euro-Asian parts of the world. . Later in life, I decided I wanted no part of that country, thanks mostly to the indelible imprint registered after viewing Midnight Express in 1978. When I’m entrenched in a routine or absolute rut, I think of the image of “the wheel” in the Turkish prison where Brad Davis spends most of the film.  It is a great movie, but that is one disturbing image.)

   Back to the market.   November crude oil prices spent a moment at $86.30 bbl today and the December WTI contract will debut tomorrow as the spot month at $86.02 bbl. That is $4.05 bbl lower than the all time record high hit last Friday morning. Did we witness the top on that day?  My Ouija Board prophesy suggested an $85-$91 bbl peak that has now been satisfied. I can’t imagine making a run at $90 bbl again in November, a traditionally very weak month for crude oil and gasoline.

   Both of my metaphorical crutches are still active. During most years, I can routinely predict that gasoline prices will stay lofty only through baseball season, and indeed, the 2007 season will stretch on until November 1 or 2, based on the schedules I’ve seen.  I’ve also used the seasonal metaphor that crude oil and gasoline prices tend to fall with Autumn leaves. To that end, we haven’t had anything close to a frost in most northeastern towns, so the leaves are some three weeks behind normal, and there has been no brilliant color. The oil cycle may simply be matching the baseball and foliage rhythms, stretching a bit longer than the norm.

Some Numbers   .   .   .

   So far, the year-to-date average price for WTI crude is $67.49 bbl. While that is nearly $20 bbl higher than today’s number, it compares as follows to previous years in the decade (I know 2000 isn’t technically part of the decade, but forgive me)

2000  -    $30.26 barrel

2001  -    $25.95 barrel

2002  -    $26.15 barrel

2003  -    $30.99 barrel

2004  -    $41.47 barrel

2005  -    $56.70 barrel

2006  -    $66.25 barrel

2007  -    $67.49 barrel (so far)

   The most interesting numbers on October 22, 2007 show up in the diesel fuel arena. According to the data we compile for AAA (www.fuelgaugereport.com), the average price of diesel nationwide is at $3.15 gal. That is just about 50cts gal above prices last year, and the devil is in the detail of some individual states (most western states are at new record highs).   So far in 2007, the U.S. diesel price average has been $2.85 gal and that compares with $2.785  in 2006; $2.48 gal in 2005; $1.86 gal in 2004; $1.58 gal in 2003; $1.37 gal in 2002; $1.49 gal in 2001; and $1.55 gal in 2000.

   Note the 2002 price of $1.37 gal. That year is the closest thing representing recession that we have in the recent economic fossil record, and one doesn’t need carbon dating to examine the numbers. Average U.S. gasoline prices for 2002 were just $1.35 gal.

   It’s a sobering reminder that high fuel prices are dependent on a thriving economy. If the Dow or S&P were to drop by 500 points or so this week, that would most likely provide collateral damage to oil. The granular demand data published by the Department of Energy has been suggestive of a slowdown, and we’ll get another batch of data on Wednesday. If it doesn’t meet or exceed some of the bullish expectations, the Young Turks may join the Young Rascals and the Fine Young Cannibals and drop off the pop page.