Old news: Retail gasoline prices reached a record $3.28 gal this weekend, breaking last year’s Memorial Day record before we even concluded St. Patrick’s Day. Retail diesel blistered to a new all time national high of $4.002 gal this morning, and that includes prices of $4.18-$4.28 gal in the bookend states of California and New York.

   New news: Wholesale prices for gasoline plummeted today by as much as 20cts gal, and the big bulk barge and pipeline markets closed with gasoline selling for $96.50 bbl to $102.50 bbl.

    Trust me. The U.S. refining business is not the United Way. The price of benchmark sweet crude closed at $105.68 bbl today (down $4.53 bbl on the day, or the equivalent of less than 11cts gal).

     So gasoline closed anywhere from $3.18 bbl to $6 bbl under the price of crude. Something is wrong with this picture. Either gasoline prices are horribly undervalued, or crude oil prices are terribly overcooked. I’ll order up the combo meal on this choice and predict that we may see higher wholesale gasoline values and lower crude one month from now.

   But you’ll see lower prices on the street in the next few days. And today was gratifying in this respect: for a day, it disproved the notion that oil futures could replace gold as the favorite “hedge against inflation.”  Pretty much every commodity with the exception of gold closed sharply lower today, and there were murmurs that there could be of all things - - a bubble! - - in commodity markets.

   Today, I looked at the leverage, and the amount of money invested (speculated) in oil as of last Tuesday, when the Commodities Futures Trading Commission (CFTC) gave its regular report on futures’ participation. Here’s what I found:

    The big money in index funds, investment pools, and speculative commodities’ houses is still firmly bet on more price appreciation for these oil futures & options.    For the purposes of attaching values to the positions, I ascribed a conservative value of $105 bbl on a barrel of crude; $111 per barrel on a barrel of gasoline blendstock; and $120 bbl ($2.85 gal) on heating oil in making the following calculations.

   Approximately $16.2-billion more money was bet on higher WTI crude prices last Tuesday than was bet on a lower price outcome.  About $5.6-billion more money was bet on a higher outcome for gasoline blendstock, and about $3.3 billion more in speculative (investment) money was bet on higher prices for heating oil. The grand total of money on the “long” side (betting on higher prices) for these three futures’ contracts was more than $25-billion.

   I’ve appended an OPIS story that gives much more detail, or as the business wonks are prone to say - - granularity - - on the futures’ numbers. It appears at the end of this post, and could test the attention span of most readers who have probably moved on from the Eliot Spitzer scandal.

   (Personal aside: OPIS is located in Wall, New Jersey, and our offices stand approximately one mile from the high school that the alleged Spitzer call-girl attended from 2000-2002. So any electronic media looking to cover the oil price spike and the Spitzer story can find a two-fer for its news crews here in town).

   Ok, let’s return to the fabric of the oil markets. Many veteran oil executives and analysts bemoan the “disconnect” between oil prices and the traditional fundamentals.  But there’s nothing more fundamental to a market’s movement than money flow, and it’s not clear whether the cascade of money into oil and other commodities has reached its zenith.

   I don’t have the credentials to make such a macroeconomic call. But I do have the credentials to make a few other statements. Some thoughts:

-         The 2008 gasoline price spike has been all about crude, and has especially not been driven by demand.  But a second round of updrafts could get driven by supply in the April and May period. A refiner can’t be expected to process crude at $105 bbl, and turn out a product that fetches $100 bbl or less.  Refinery runs will probably slide in the next few weeks, unless crude oil prices buckle. This could set up the traditional second quarter run in prices after we move through a temporary respite.

-         Diesel is still the strongest product across the globe, but it gets virtually no attention from the general, business, and trade press. More than any other oil product, diesel has an impact on inflation.  Prices are up by about 60cts gal in one month, and they are $1.25 gal above where they were last year.

-         U.S. refineries are making some renaissance margins on diesel fuel, jet fuel, and heating oil.  But their flagship product is gasoline, and it cannot be sold at a loss for more than a few days. Take a look at the performance of some of the pure refiners on Wall Street today, and you’ll see a hint of the dark ages.

-         A Dow Jones story published at midday quotes Vice President *** Cheney who while in Baghdad noted that current crude oil prices that are above $100 bbl “reflects primarily the realities in the marketplace.”  The Vice President subsequently alluded to low spare capacity, a weak Dollar, and rising demand in developing countries.

       I can’t imagine that theVice President was talking about the traditional “realities” or fundamentals that we are all familiar with.  I would suggest he view the CFTC data that is cited in the story below.

From OPIS Petroscan Service, March 17, 2008

CFTC DATA: GLIMPSE OF RECORD SPECULATIVE LEVERAGE ON NYMEX

      Data released by the Commodities Futures Trading Commission Friday may detail just how pumped up oil prices may be thanks to record amounts of speculative and investor money that’s moved into crude oil and refined products.

   The numbers got little scrutiny today, what with gasoline futures down 10-20cts gal during the day and with crude oil posting $5 bbl plus losses at one point.  And CFTC’s next snapshot of activity by “non-commercial” traders - -generally reflective of speculative funds, index funds, and large commodity pools - - will be taken tomorrow afternoon. So, today’s numbers are dated, as is the custom with CFTC reports.

   But an analysis by OPIS reveals a stunning tilt among the non-commercial (speculators and investors) segment, and the big money was firmly bet last week on more upside in oil prices, particularly crude oil.

   The data reflects outstanding positions last Tuesday, March 11.  For this story, OPIS put a conservative value of $105 bbl on each crude oil contract; $111 bbl (about $2.65 gal) on gasoline blendstock contracts; and $120 bbl on heating oil contracts (about $2.85 gal).

    Here’s a look at what those ball park numbers reveal:

   - Approximately $16.2-billion more money was bet on higher WTI crude prices last Tuesday than was bet on a lower price outcome. Crude oil is one contract where ratios hardly ever reach whole numbers, but there were 2.1 positions on the long side for each short sale. The “net long” position in crude oil futures and options rose to 154,402 contracts, representing 154.4-million bbl.  That is more than ten days of the total amount of crude likely to be imported into the U.S., or just over two years worth of actual WTI production.

  -  About $5.6-billion more money was bet on a higher outcome for gasoline blendstock,  with the net long position in RBOB increasing to 50,663 contracts or 50.66-million bbl. There were 3.85 speculative long positions for every short. Ironically, those on the short side of gasoline had larger positions (an average sale of 986,000 bbl) but among the large traders, there were 74 players in the buy column and just 18 on the short sale roster.

  -  Some $3.3-billion more money was wagered on a higher priced outcome for heating oil. That number most likely swelled later in the week as heating oil prices rose by about 20cts gal. The net long position actually decreased slightly last week to 27,414 contracts, but there were still 2.7 long positions for every short.

   - The aggregate length in crude, RBOB, and heating oil added up to over $25-billion bet on price escalation. Records aren’t kept in this category, but most market observers believe that it represents the largest dollar wager bet on higher prices so far.

   The report also puts a spotlight on the incredible expansion that has brought many more financial companies into crude and products’ futures & options markets. Total open interest in the three marquee contracts moved above 3.5-million contracts, representing 3.5-billion barrels of oil.

   Postscript: Oil is just one of the more high profile commodities that have attracted financial attention. The bullish tilt is apparent in metals and agricultural products, and while there is less money in play, the ratios are considerably higher.

   Speculative longs outnumber speculative shorts by ratios of 5.6-to-one in wheat; 10-to-one in silver; 8-to-one in gold; 16-to-one in corn; and 17.5-to-one in soybeans.