Three weeks from now, I’ll publish my official 2008 Retail Gasoline Price forecast and give a sense of what the fuel landscape might look like as political candidates traipse through the continent. Suffice it to say that it will be a Jekyll/Hyde/Jekyll sort of year (I’ll explain more when I’ve tossed the dice; visited the witches’ cauldron; and gripped the Ouija Board as we approach the solstice).
But meanwhile, it’s relatively easy prediction as to where retail gasoline and diesel prices are headed between now and Christmas week. Values are headed lower, and I suspect it might be enough to give holiday shoppers a small sugar rush as they hit the malls. (Note: as a red-blooded American male, I do not shop --- but I do occasionally buy things.)
The secret to the prediction lies in the wholesale price structure. Here’s a quick look at how wholesale prices have performed between Thanksgiving Wednesday and today:
New York Gulf Coast Midwest West Coast
------------ ------------- ---------- -------------
Nov. 20 Unleaded $2.45 gal $2.38 gal $2.39 gal $2.57 gal
Current Unleaded $2.24 gal $2.19 gal $2.17 gal $2.36 gal
Nov. 20 Diesel $2.75 gal $2.70 gal $2.75 gal $2.77 gal
Current Diesel $2.60 gal $2.50 gal $2.50 gal $2.49 gal
Today’s numbers take into account the small rally that has occurred in U.S. markets. Many of the veteran oil traders that I talk to believe that today is a “dead cat bounce” (Sorry … PETA members, do not write and complain . . .it’s not my term). I tend to agree with the assessment - - - three out of four professional oil traders were bullish earlier this week, and the “bullish” news of an OPEC quota rollover together with an 8-million bbl drawdown in U.S. inventories couldn’t stop waves of selling.
Oil markets got “sloppy drunk”, reflecting financial parties’ penchant for excess, and markets are prone to behave in this sloppy fashion during numerous intervals in any year. December will see some traders “sober up” but they’ll get back on the sauce before the vernal equinox.
Based on today’s wholesale prices, I suspect that we’ll see average U.S. prices dip below $3.00 gal by Monday. You can track this prediction at the website we put together for AAA at www.fuelgaugereport.com . The largest decreases will take place in markets fed by Texas and Louisiana refineries - - that’s where wholesale prices are about 20cts gal lower than they were just before Thanksgiving. Some Christmas shoppers in states like South Carolina, Georgia, Arkansas, Texas and even New Jersey (where most of the imports arrive) may see $2.75 gal by mid-month. All of this is subject to change, but my sense is that any adjustment in prices will be in the southerly direction.
There will be the tendency to overstate this trend. Many of the media attention mongers love to rely on hyperbole in making predictions – - the same people who suggested gasoline was “headed to the moon, Alice” (see Ralph Kramden, c. 1961) may now project that prices will head back toward $2.50 gal. The actual outlook for December is much more temperate - - the mega-swings will come in 2008.
Some Incredible Numbers
Department of Energy statistics released earlier this week showed that gasoline demand for the first 333 days of 2007 (through November 30) has averaged 9.301-million b/d. That is approximately 0.6% above last year, and the pace of year-on-year has slackened in the last 60 days.
If you plug in year-to-date retail prices, here’s what you get. Through November, the American public spent about $360-billion on gasoline, or about $1.08-billion per day. For a while, it looked like we might hit the $400-billion mark in 2007, but we’ll fall short of that number by about $3-billion or $4-billion, give or take a Trump fortune or two.
Still, year-to-date outlay for gasoline is quite high compared to 2006 and downright astronomical when viewed from a five year perspective. Through November 2006, Americans spent about $331.9-billion on gasoline or $996.7-million per day (trust me on these numbers … there is some science in making the calculations. I did not rely on the Jethro Bodine method of ciphering and gezinta’s). In all, we spent about $358-billion in 2006 on gasoline, so we’re on a track where we’ll spend about $40-billion more this year.
The 2002 comparison is much more compelling. We used less gasoline back then - - about 445,000 bbl per day or 18.7-million gallons per day less - - than the current consumption rate. Prices averaged about $1.35 gal that year, so the collective daily bill was about $502-million, and the annual tally was “just” $183-billion.
So, unless there is a drastic change of human behavior between now and New Year’s Day revelry, we are on track to spend more than twice what we spent on gasoline just five years ago.
That should sober up any sloppy drunk.