The nationwide price for gasoline stands at $3.01 gal this morning, and it will surely be substantially below that number in the next few days. We are spending about $1.152 billion each day on gasoline, compared with $817.6-million on the same day last year. That gap will narrow in the next few weeks.

   Yesterday was a quiet news day in the U.S., but one story caught my eye. Various studies have shown that the third Monday in January is widely viewed by behavioral scientists as the most depressing day of the year. It merits that distinction because the days are still short, the temperatures in the northern hemisphere are traditionally brutal, the holidays are memorable only because of the onslaught of credit card bills, and Spring seems a huge distance away.

   The traditional timing is quite similar in oil markets. Mid-January a year ago saw crude trade briefly at $49.90 bbl; and a day or two before January 2007 ended we hit the low water mark of $2.14 gal for unleaded gasoline. Note: A number of states actually slipped below $2.00 gal last January and that short list included Indiana, Kansas, Michigan, Missouri, Ohio, Oklahoma, and South Carolina.

   The numbers are of course much higher this year, but the present sentiment is hardly euphoric. As I write this, there are estimates that global wealth has been shaved by more than $5-trillion in the last three weeks. World stock markets are in disarray; central bankers are not getting much sleep, and the word “recession” is moving into the present tense. It is difficult for me to grasp the concept of $5-trillion - - a quick calculation of gasoline prices from 2001 through 2007 yields an estimated cost to U.S. consumers of $1.4-trillion. So, $5-trillion is a lot of money.

   Will the talk of U.S. or global recession send crude oil prices and gasoline values lower? Does it point to the end of the refining renaissance? I’ve attached a recent OPIS story from our newest editor (Beth Heinsohn, formerly from Dow Jones, Platts, and the Wall Street Journal) for some insight. It follows this post.

   But as of right now, crude oil is trading for about $88 bbl, or more than $12 bbl below its all time record high hit on January 2.  Wholesale gasoline prices are anywhere from 25-40cts gal beneath the numbers they hit on that day.  Retail gasoline has dipped by only  9cts gal in that period. 

   That is why, with great safety and certainty, I can conclude that there is another 10-20cts gal in retail gasoline price weakness ahead. Right now, we are paying about $1.152-billion each day for gasoline, or about $300-million more per diem than in 2007.  If the global financial markets don’t steady, we might drop to say $2.75 gal on retail gasoline, which would knock another $100-million off that bill.

   That’s not enough to make a dent in $5-trillion, but it’s a start.

-         T.K.

-          

  Here’s the recession story that ran last week. It is still very pertinent.

Tuesday, January 15, 2008 4:12:03 PM

U.S. RECESSION COULD HIT FUEL DEMAND BUT PRICE IMPACT DEBATABLE

   The U.S. isn't officially in a recession, but the oil market is beginning to act as though it at least anticipates one. Regional price differentials as well as NYMEX benchmarks have shuddered lower amid a parade of dismal economic indicators and stock market swoons. Year-on-year gasoline demand growth is flattening. Should fuel marketers worry?

   United Energy analyst Walter Zimmerman recently charted gasoline and heating oil prices in the last recession -- December 2000-November 2001 -- and rendered a couple of conclusions. Recession skewed spot price cycles to the bearish side by abbreviating seasonal rallies as well as deepening seasonal price declines.

OPIS spot gasoline data supports that conclusion. Refiners appear to have fared better than fuel marketers, exposed as they were to crude costs that made a deeper than average fall into a winter decline. In fact, gasoline refining margins showed no evidence of a recession, following seasonal trends with "textbook perfect" timing, according to Zimmerman's analysis.

    Any selling of products tied purely to recession fears has been tempered by relatively tight combined inventories of crude and refined products. But some believe that a recession would eat into fuel demand growth, if not into outright consumption.

   "Fuel demand has already been weak and a recession would hit it even more,"

possibly causing it to contract, said Juan Pablo Fuentes, an analyst with Moody's Economy.com.

   Energy market analysts have been closely watching gasoline demand for indications about consumers' tolerance for higher prices but maybe they should have been watching for recession cues.

    While arguably robust at 9.3 million b/d currently, gasoline demand has slowed its growth as year-on-year price increases of 30% and more took hold in the second half of 2007. Department of Energy data show 2007 year-on-year demand growing only half a percentage point, down from previous years' range of 1.0 to 1.5%.

   Excluding 2005, which saw demand growth of 0.6% mostly because of the devastating Gulf Coast hurricanes, the last year to show growth of 0.5% or less was 2000 -- right before the last recession.

   The impact of a recession in 2008 on fuel prices -- or maybe just the timing -- is less certain, Fuentes said. Crude oil at close to $100/bbl has kept gasoline prices high, but a recession would hit the value of crude, Fuentes said, even if demand outside the U.S. remains strong. With expectations for retail gasoline prices to rise to well over last year's record $3.227/gal in the spring, a recession in that timing window might only moderate the price rise.

   Lehman Brothers sees fuel demand impact from a possible 2008 recession, but not right away.

   Tight refining capacity remains a major factor buoying fuel prices and refining margins and is one that won't begin to be resolved until significant plant additions come on line in 2009. "Spring turnarounds will be long and deep and there will be unplanned outages," said Michael Waldron, an energy analyst at Lehman.

   While acknowledging that a recession would eventually slow growth in fuel demand, Waldron doesn't see consumption actually falling.

   Goldman Sachs, one of the first major investment houses to predict a 2008 recession is on the way, doesn't link economic slowdown with falling energy prices. Its analysis suggests that commodity investors will not unwind long positions on the assumption that a recession would trim consumption and eventually slice fuel prices.

   Last week the firm affirmed its call for West Texas Intermediate crude to average $95/bbl this year despite its forecast that U.S. GDP would contract by 1% in the second and third quarters. Goldman sees strong growth in total petroleum demand outside of the U.S., lower-than-expected OPEC production increases and escalating production costs lending sturdy "structural" support to the benchmark crude price.

   Goldman also remains bullish about refined fuel demand -- both inside the U.S. and abroad. The investment bank believes that gasoline is indeed the energy commodity most vulnerable to a recession that significantly curtails consumer spending, but it also sees supply constraints and already-tight stocks limiting builds in inventories that would slacken gasoline prices and refining margins.

   How might a 2008 recession differ from the last? Money -- lots and lots of Wall Street money.

   The flood of financial investment flows into energy commodities has widened the gap between highs and lows and the speed with which prices can change, says Economy.com's Fuentes. The move has made the market more speculative and volatile.

   "Under normal circumstances the oil market is uncertain but in a recession both uncertainty and volatility increase -- it's a negative factor," he said. "The next question is what kind of recovery will we see and how long will it take?"

   --Beth Heinsohn, bheinsohn@opisnet.com