Today is the anniversary date for the lowest fuel prices of 2007. A year ago, the nationwide gasoline price stood at $2.143 gal, and it ultimately climbed an additional $1.08 gal by Memorial Day weekend. Could the same thing happen again this year?

   Well, first of all, I don’t believe that today’s national average of $2.978 gal represents the low water mark for 2008. It is the lowest price in the first 29 days, but we should see more downward drift in the next few weeks. Regardless of what you hear from Wall Street, or what may be reported by MasterCard, gasoline demand is lousy. It is lower than last year on the West Coast and quite likely subpar in most other sections of the country as well.

   Also, we still have some catching up to do with wholesale price decreases that have occurred since the $100 bbl crude high on January 2. There is enough momentum to take average nationwide gasoline and diesel prices down another 10cts gal in early February.

   And, today’s nationwide average is a bit misleading. It is nearly 40 percent above the average one year ago, when we first learned that we were addicted to oil. We have dealt with our addiction in a manner similar to John Daly and Lindsay Lohan.

   However, every single continental state with the exception of Connecticut now has unleaded gasoline for less than $3.00 gal. You may have to shop around to find it, and it may not be entirely sensible to do so, but those cheaper prices are out there. Of course, a year ago, the leading edge in many states for those gas price shoppers was just under $2.00 gal. (For details of state-by-state prices, visit www.fuelgaugereport.com)

   So where do we go from here?  Do we match the gains of 24cts gal last February; 28cts gal last March; 29cts gal in April; and 27cts gal in the first 25 days of May? If we do, we are looking at an average nationwide price of $4.06 gal before driving season.

    I don’t think such increases are likely, given a much more sluggish demand landscape in 2008. But once we put in a bottom - - and I suspect that bottom will come in February  - - it is easy to see a path that matches 50% of those 2007 gains. And matching 50% of the 2007 gains yields a price peak of over $3.50 gal.

Oil & Wall Street Intertwined

   In the meantime, we have what I call a two-screen market. If you don’t have at least two LCD monitors for your business computer, you might want to think about buying another one or two screens soon. (Note to manufacturers: I could use another HDTV) Crude oil prices are moving not so much based on energy-specific news, but instead on global headlines about jobs, credit woes, and other macroeconomic events. Crude oil traded for under $87 bbl when it appeared as though a global meltdown was in progress. The price subsequently rebounded to about $91 bbl when interest rates were cut, global stock markets soared, and an economic stimulus package was crafted in Washington. You have to keep one eye on financial news with another trained on petroleum fundamentals.

   Crude will probably remain closely tethered to the macroeconomic news through this week when the Federal Reserve again meets with another interest rate cut widely expected. But the view downstream isn’t as rosy as the stock-and-commodities market cheerleaders make it out to be.

   Gasoline demand is quite miserable, with the U.S. West Coast a particular sore spot. The weekly statistical demand data may remain negative to the same period a year ago well into February, based on everything we hear from gasoline retail chains.

   The incentive for foreign refiners to move gasoline for export to the U.S. is gone but before it evaporated, quite a few cargoes were fixed for transatlantic movement. The next two weeks could well see imports about 300,000 b/d above traditional January levels. European refiners have trimmed runs, but most of the vessels were loaded before they recognized that there was no profit in moving fuel stateside. Most of the gasoline coming to the U.S. is Winter spec, which has a limited shelf life in some markets.

   The pace of U.S. refinery maintenance, meanwhile, has quickened with plenty of ongoing work at the U.S. Gulf Coast in particular. But it might be difficult to match the meager output levels of last February and March. Two of the major catalysts in the gasoline price rally last year occurred thanks to first quarter accidents. The one year anniversary of a fire at Valero’s McKee, Texas refinery (2/22/2007) and BP’s Whiting, Indiana refinery (3/22/2007) are highlighted on the calendars of traders with a sense of history.

Odds, Ends, & Observations

   The growth in crude oil trading has leveled out a bit with futures participation no longer doubling each 18 months or so. However, trading in gasoline (specifically, the NYMEX RBOB contract) has exploded in the last year. Daily volumes traded are many multiples of actual physical needs, and speculators have many times more money “invested” in positions as compared to previous years.   The big speculative money—for the moment-- continues to be wagered on higher prices.

   Ethanol has zigged, while gasoline has zagged. A couple of months ago, one could mix 10% ethanol with gasoline and cheapen the finished blend by more than 10cts gal. That advantage has been whittled down to about a nickel, thanks to increases in the value of ethanol and a slip in the price of gasoline blendstock.

   Last night’s State-of-the-Union address broke no new ground on energy. The energy elements of the speech had all the luster of jukebox selections at a classic diner: more drilling offshore and in Alaska; greater investment in new technologies; and a doubling of the Strategic Petroleum Reserve.

    The most important piece of energy legislation for most folks came several years ago when Daylight Savings’ Time was moved up on the calendar. That insures that we’ll get a better look at rising prices each Spring, since many of us will fuel up during the light of day.