The answer to the question posed in the headline is “about 60 days”.
We moved under the $3.00 gal standard today, and prices include a range as broad as stateside temperatures, with values of $2.60-$2.75 gal in some Midwestern Rust Belt states, and as high as $3.40 gal on the West Coast. As always, if you are interested in the details, visit www.fuelgaugereport.com for the specifics, by state, or by metro area.
Let’s not overstate this small Christmas present. Americans typically buy about 50 gal of gasoline per month, and a $2.995 gal number (today’s average) means that they’ll save about $5 on gasoline in the next 30 days. I’m not quite sure if that will pay for a quart of eggnog or the AAA batteries that fly off the shelves later this month.
On an aggregate basis, today’s price translates into about $1.166-billion per day in motor fuel cost. When prices were 10cts gal higher (Thanksgiving week, for example) that outflow was in the neighborhood of $1.206-billion. So, there’s another $40-million per day in U.S. consumer spending power at the moment, when gasoline costs are calculated.
And I do not expect that this month will bring a big pricing move. The next big move will occur as baseball is getting under way in 2008. It could be when pitchers and catchers report, or it could be when Spring training contests give way to real games. And it will be violent - - as always. If we merely approached long term average Spring cycles, we might expect 50-75cts gal in upside from March through May. The question is where is the launching pad? Is it $2.90 gal; $2.80 gal; or today’s $3.00 gal? Stay tuned.
Our Energy Secretary Speaks
Yesterday, Energy Secretary Bodman told CNBC that crude oil prices in the $90 bbl area were not supported by fundamentals. He is right, and he is wrong. Let me explain.
This decade has brought a secular change in the structure of oil markets. Beginning about five years ago, the large investment banks, private equity companies, and of course, the hedge funds all concluded that owning oil - - through purchases of energy futures - - was a prudent asset class for the 21st century.
More than anything else - - more than Iraq, Iran, Venezuela, Nigeria - - or even the seemingly insatiable appetites of China and India, it’s the growth of oil futures as an asset class that has brought us to this point. I don’t track other commodities like pork bellies, Australian greasy wool (always a favorite), or lumber, but I’m told that the financial investment in these other contracts has also grown in leaps and bounds.
In essence, the macro developments of global finance are now a new fundamental. So, Secretary Bodman is right in suggesting that the paradigm has changed, but he probably should realize that financial metrics represent new fundamentals for petroleum.
This is why the recent post mortems on oil trading days now have different types of excuses levied to explain that session’s behavior. It used to be that one would hear about major oil company buying, or selling, or cargo traffic, or weather and other supply and demand factors. Now, it’s much more typical to see market moves attributed to the weaker Dollar, or the Jobs’ Report, or notes from the Federal Reserve. It’s a much more macro market, and its direction is fairly or unfairly attributed to elements in global finance.
Hey, it could trade much lower or higher today based on what the Fed does with the federal funds’ rate or the Discount Rate. I wouldn’t be surprised to see it eventually make a move when the Fed puts out its “Beige Book”. Why is it beige, anyway? Is it homage to that lesser Norse Viking of yore, Eric The Beige?
Scorecard
- Today’s retail average is $2.995 gal, adding up to the $1.166 billion aforementioned daily bill. It compares to a price of $2.29 gal last year, and that 2006 price yielded even lower numbers through January 2007. The month of January is perhaps the poorest demand month of the year, and I suspect that harsh weather, bills becoming due, and shaky confidence in the economy may deliver a relatively gloomy January 2008.
- But there’s some more good news. Wholesale diesel and heating oil prices have backed off by 25-35cts gal from their late November highs. We previously blamed Europe for the surge (they chased prices higher with a zeal and élan that made U.S. traders seem conservative) and we can credit Europe for the recent price weakness. British companies paid more than $3.03 gal for transportation diesel less than a month ago, but that grade is worth at least 30cts gal less today. Our U.S. diesel prices have dropped by 7cts gal from the $3.496 gal November 29 high, and more decreases are in the offing.
Odds & Ends
- The U.S. has not had a week with less than 9-million b/d of gasoline demand since February 2006. We would regularly dip below 9-million b/d in previous winters - - thanks to ice, snow, and outright cocooning from the population. There is an outside chance that we could revisit low demand figures next month as those invoices for Guitar Hero, Rock Band, IPODs, etc. roll in just as heating bills are getting pumped up by degree day clusters.
- I do a lot of radio, and sometimes the networks post transcripts of the interviews. Technology apparently hasn’t advanced too far in this area. A transcript of a Bloomberg piece last week kept referring to me as Tom Close, as though I were the lesser known D-list celebrity brother of Glenn Close. I have a large cranium, but my forehead has nowhere near the space available of Ms. Close. I hope I don’t wake up with a dead rabbit on my stove, as a result of that statement.
- Speaking of siblings, today is my sister’s birthday and I wish her the best birthday possible on a gloomy and dreary December day in N.J. My sister is six years my junior, and my older brother and I teased her relentlessly in the 70’s. This may explain why I seem to be treated with contempt by any of the higher mammals that have two X chromosomes. I guess I deserve it.
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