This has been quite a week for the oil markets. Crude surpassed $101 bbl yesterday, but gave way to some profit taking today that took prices as low as $96.87 bbl. If this were the Dow Jones we were talking about, it would be the equivalent of your run-of-the-mill 500 point swing. Retail gasoline prices will soon hit their highest levels since early November in spite of lackluster U.S. demand.

    You will see much written about the events that drove the crude market to its all time high on Wednesday.  Few oil traders have read Kipling - - -“If you can keep your head when all about you are losing theirs.”   This is not a community that views the world in shades of gray.

   Many of the people who I lean upon, and trust within the technical analysis community, however, believe that we saw a “break-out” this week. One may not necessarily agree on where crude might be 60 days from now, but there is a sense that the brackets of the three month $86-$100 bbl trading range for crude have been altered.  

But $100 bbl crude did not represent a rising tide that lifted all refined products’ boats equally. The hot product at the moment is diesel - - it hit a record $3.50 gal at the pump (or truckstop) today and it has momentum to move higher. As highly prized as it is in the U.S., it is the true growth product in the rest of the world, and we are quite likely exporting more diesel than we are importing. It represents the dark side of being part of a global market.

Wholesale gasoline prices moved higher, but it’s not clear whether all of the increases will hold. It is still Winter. Gasoline tends to advance in a three steps forward, two steps back sequence until the vernal equinox.

  Crude oil didn’t race to $101 bbl because of Venezuelan politics, Nigerian labor unrest, or OPEC production talk. It actually surged in a wild Wednesday paroxysm that immediately followed the publication of minutes to the Federal Open Market Committee. The minutes suggested that U.S. central bankers were inclined to cut interest rates further in order to deal with the economic slowdown. Interest rate cuts mean easier money, and investor money soon poured into oil and gold.

  Note to vocabulary-challenged male readers: If you do not recognize the word “paroxysm”, you can generate an onsite demonstration that defines the word the next time you are home with your spouse. Blow your nose, and wipe it on the drapes in full view of your wife, and you will probably witness a paroxysm.

Coming Attractions of Inflation . . .

   Lost in the euphoria about lower interest rates was concern about inflation. Every evening, CNBC commentator and sartorially splendid Larry Kudlow regularly discounts the ugly return of price appreciation in the economy. He makes his points well, but it’s my sense that he tilts his panels toward the “inflation is not a problem” conclusion.

But consider for a moment, the inflation that reared its head in the U.S. petroleum market in a 13 day stretch from February 7 through February 19. Unlike some of Mr. Kudlow’s guests, I am not making up any of this data.

In less than a fortnight, wholesale gasoline prices moved up anywhere from as little as 31cts gal (in the Midwest) to as much as 42cts gal (in the Pacific Northwest). Now, I’ll translate that into classes of trade.

- For one of those eighteen wheelers hauling gasoline on the highway, that translates into an increase of about $3,000 per load.

- For a barge or pipeline parcel within America’s distribution system (about 25,000 bbl) it translates into an increase of more than $380,000 in thirteen days.

  For a cargo (tanker vessel), that price appreciation adds up to about $4-million for a single handy-size ship.

  These quotes are for gasoline’s wholesale appreciation within the 13 day period. Diesel prices actually advanced by about 46cts gal in the same time span. That adds up to about $3700 per truck; $480,000 per barge or pipeline batch; and $4-million for a cargo.

 Only about 40% of those wholesale increases have been passed on to retail so far. Unless petroleum marketers want their accountants and controllers to experience their own paroxysm, the numbers almost certainly will soon rise for the public and for commercial end-users.