As a middle aged man with good hair, I am not above taking the occasional cheap shot at my colleagues and comrades who are in various stages of male pattern baldness. What follows is not a cheap shot - - it is just the perfect metaphor to describe the ongoing polemic about 2008 U.S. gasoline demand.

   Trust me on this one.  Gasoline demand through the first 38 days of this year has been poor, which is to say, it has been at best flat with year ago levels.  Some of the speculators and investors who have vested interests in a price rally will tell you that gasoline demand is as brisk as ever.  They are wrong.  They are guilty of what I would call the construction of a gasoline demand comb-over. If you look seriously and talk diligently to people in the supply chain, they will reveal that gasoline demand is lousy and it is particularly lousy in states like California and Florida that have been hit hard by the recession in housing.

   This is not to suggest that consumers have made lasting changes to their behavior or that the entire economy has slipped into recession. The latter conclusion should be left to the Nobel laureates and professional economists. I’ve seen soft Winter demand followed by robust Spring demand and will withhold judgment on the long term 2008 template for now.

Number Watch

   The nationwide retail price for regular unleaded gasoline was $2.972 gal today, and it still looks like it will drift lower over the short term. Prices of less than $3.00 gal can be found in virtually every state in the continental U.S. and there’s no reason to believe that big increases are coming, say, next week.

   At today’s price, we are paying about $303-million more each day than we were on this day last year. Today’s gasoline fuel bill was $1.119-billion compared to $815.9-million one year ago.

Outrage  .  .  .

   My pledge on this site has generally been to stay away from politics. There isn’t much difference between all of the major party candidates for president when it comes to fuel policy. None of them have crossed the important bridge and called for sacrifice by the public, and until that bridge is approached, most of the programs and projects are mere band-aid solutions.

   I will break the political rule today to comment on one paragraph gleaned from a Dow Jones story that quoted Energy Secretary Samuel Bodman.  Here’s the quote:

  "I am prepared to tell you that the supply and demand for oil has favored the suppliers and not the demanders, not the consumers, ever since I was here a year ago," Bodman said at a House Energy and Commerce Committee hearing. "Those who have looked at the markets and have looked at the question of whether speculators are affecting the price tell me that the answer is no."  Note: I have bolded the last statement for emphasis.

    Yikes!  Who did Secretary Bodman call?  Boone Pickens?  Jim Cramer?  Goldman Sachs?

   One can make the argument that speculators are often unfairly blamed for market movement, and there is a thin line between speculation and investment among the new legion of financial traders who dally in commodities. I ran this statement by several friends in the oil business, an industry that is prone to very conservative republican views. They were embarrassed by the comment – although it does present an interesting new term since we have never referred to the “demanders”, at least outside of our personal households.

Failure To Launch?

  You might recognize the three word title as a very forgettable 2006 romantic comedy, starring Matthew McConaughey and Sara Jessica Parker.  Some might even regard it as a scary movie since it presented some brief nudity by Terry Bradshaw.

   We are now nearly 40 days into 2008 and we have yet to witness a gasoline futures rally. That mere fact has created nervousness among refiners, oil investors, and speculators (regardless of what Secretary Bodman says, they do play a significant role and can be scarier than Bradshaw’s naked buttocks).

    The historical record suggests that the later the launch, the more subdued the rally. That is one of the reasons why I am still comfortable with a $3.50 gal target price for this year’s Spring peak, rather than the $4.00 gal plus numbers proffered by some of the hyperbole hounds.

   Of course, last year saw a relatively late launch as well, and 2007 ultimately delivered a surge of more than 84 percent in futures’ quotes, as well as a doubling of some individual spot market prices.  There are some big differences one year later, not the least of which is concern about an economic slowdown or an outright recession. It’s hard for crude oil and products to rise when world stock indices and spending are in retreat.

   Notwithstanding the sluggish February environment, there are still factors that point to plenty of upside for gasoline, at least in the traditionally strong months of March and April.  Many of the refineries currently undergoing turnaround work will see operations restarted in those two months. Restarts present the most troublesome period for refinery “events”, so March and April will inevitably see unanticipated downtime.

   There is also the switch from Winter-to-Summer blends. That switch is fully under way in southern California, where refiners are shipping exclusively low volatility Spring/Summer spec gas.. There hasn’t been a “binge” of buying that followed the January winter blend “purge” but California spot blendstock prices are still up an impressive 17 percent from those mid-January levels of $2.03-$2.05 gal.

   Seventeen percent isn’t chump change, but it puts the West Coast well short of last year’s trajectory. By this time in 2007, California wholesale gasoline prices had surged 44 percent from the January bottom.

   Other markets still can’t get vertical traction. A year ago, wholesale markets in New York, Chicago, and the Gulf Coast had by now recorded 21 percent to 46 percent gains. New York is still searching for a Winter bottom and earlier this week we saw a 100 day low. The Gulf Coast and Chicago markets are within a nickel of their offseason low water marks.

   One other significant difference versus 2007 bears special attention. The growth in gasoline futures (blendstock) in the last twelve months has been nothing short of extraordinary, and many of the volume and open interest gains are attributable to investment funds and other financial participants. (Someone in Washington surely needs to read this blog). These financial players continue to believe in a significant upside for gasoline, if not for the entire energy complex. The next few weeks may determine what kind of patience is attached to this new money. History points to paradox - - the market often must flush some of weak speculative length and show a slight bearish bias, before it finds its true Spring mojo.