You’ll have to read this entire post to get the reference in the headline. But this has certainly been a remarkable week. Crude oil spent time above $108 barrel but it also had a cup of coffee below $100 barrel. Eight percent moves aren’t unusual these days in commodities’ markets; indeed that volatility is the straw that stirs the drink on Wall Street. And, we’re not talking about the “milk of human kindness.”

    No more Shakespearean references. Let’s take a look at the scorecard for fuel prices as we finish out a wild first quarter.

    Retail gasoline prices today average $3.275 gal nationwide, a penny shy of the record established March 16. I still believe that record will be shattered quite easily in the next 60 days.  California residents will probably see retail prices there break the previous sate record of $3.634 gal (3/17/2008) this weekend. They may even see regular unleaded gasoline averages of close to $3.75 gal shortly. Some refinery problems have surfaced in that state, so the surge is supply-related and not due to some massive idling of cars on the freeway system.

   Based on most recent demand numbers, OPIS estimates that Americans will lay out about $1.254-billion for gasoline today. Here’s how that number stacks up with the previous seven years:

    America’s Gasoline Bill - - March 28, 2000 Through March 28, 2008

                 Year                       Retail Average            Daily Cost

                 -----                       ------------------             -------------

                2001                         $1.429 gal                      $510.4-million

                2002                         $1.349 gal                      $475.0-million

                2003                         $1.663 gal                      $578.6-million

                2004                         $1.746 gal                      $640.3-million

                2005                         $2.145 gal                      $819.2-million

                2006                         $2.501 gal                      $951.9-million

                2007                         $2.603 gal                      $1.038-billion

                2008                         $3.275 gal                      $1.254-billion

     Because there is no reliable means of measuring transportation diesel demand, I can’t put together a similar table for diesel expenses. However, retail diesel prices today are at $4.018 gal, just below the all-time record of $4.037 gal reached last weekend.  A year ago, the price was $2.775 gal. 

Some Observations On Demand

   The Department of Energy today revised its estimate of January 2008 gasoline demand. You can recall that I wrote about the various overstatements of demand in a previous post (2/7/2008, with references to a “classic combover”).

    The new gasoline demand number for January 2008 released today is 8.814-million barrels per day, or just over 370-million gallons per day of motor fuel.

   That is the lowest gasoline demand number for any month since January 2005. I suspect that we will see the Department of Energy revise February 2008 numbers at a later date, so stay tuned.

    Demand for gasoline will rise in April and May from the depressed levels that we’ve seen so far in 2008.  But the Spring “lift” for demand has been in steady decline for this entire decade. We’ll probably use about 350,000 barrels per day (or 14.7-million gallons per day) more gasoline in April and May than we used in say January and February.

   The rally in prices should come by virtue of supply, not demand.  Refiners are running less crude and feedstock than they have since Hurricane Rita was tossing Anderson Cooper around like a rag doll. The low rates and the inevitable problems that come with restarting idle refineries will lead to gasoline inventory draws next month.

We Are The World   .   .    .

   There’s no question that diesel prices above $4.00 gal have severely crimped commercial demand in the U.S.  Many of our sentinels (chain retailers, truckstops, etc.) say that diesel sales have plunged in the last six weeks.

   A week ago, I thought that we had achieved the 2008 peak for diesel and heating oil prices (both were generally above $4.00 gal). I may have sounded a premature “all clear” signal. Here’s why:

     Wholesale prices last week dropped by 20-40cts gal, but they bounced back this week. An unlikely axis of global locations - -New York, South Korea, and Chile - - pushed wholesale values again near all time highs. The action was this year’s version of the “butterfly effect”, the variation of chaos theory that suggests small variations in a distant locale can have dramatic changes in a complex system. We are large exporters of diesel fuel, and that is a consequence of an open global market.

    New York saw a prompt supply squeeze for heating oil, which soared above $3.25 gal (wholesale) on fears that there could be problems in finding actual physical barrels to satisfy delivery on the N.Y. Mercantile Exchange.

   South Korea was the site of a power outage for a company little known among U.S. marketers but now a vital force in the import/export business. A virtual cold electrical shutdown of a 575,000 b/d export refinery operated by S-Oil resulted in a force majeure notice on a number of distillate cargoes. (Force majeure clauses allow companies to renege on delivery, provided that there was an “act of God” that presented circumstances beyond their control).

   Chile is included in the axis since that country has perhaps the most voracious appetite for diesel fuel. The U.S. has become a large exporter to South America within the last two years, and Chile is one of the biggest overseas customers for export refineries.

   So, ultimately, the question of whether the U.S. has hit a peak on diesel - - and jet fuel - - and heating oil prices - depends on the rest of the world.  

Gasoline & Consumer Confidence

      Consumer confidence this week reached its lowest point since December 1973. For the record, I did not possess a car at that point, but I was ordered to siphon gasoline from random automobiles by the ringmasters of my fraternity (I was a lowly pledge). One never gets rid of that taste, by the way.

     It is not coincidence that these low confidence numbers occurred against the backdrop of $100 bbl plus crude, as well as fuel prices that were 80-90cts gal higher than any previous Winter. The teeming masses react to in-your-face gasoline prices of $3.25-$3.50 gal with an emotion somewhere between annoyance and absolute rage. And a homeowner getting a $2,000 invoice bill for 500 gallons of heating oil can hardly be expected to file that bill with insouciant aplomb.

   Do you remember December 1973? It was the third month of the Arab Oil Embargo, and the Washington hotel in the news was the Watergate, and not the Mayflower! Truckers were protesting en masse, inflation was hammering the country, and food and fuel prices led off evening news telecasts hosted by Walter Cronkite, Howard K. Smith, and John Chancellor. Ralph Nader was on a crusade, but instead of running for office, he was calling for the removal of lead-based holiday candles.

   Some of this sounds familiar, but there’s a tendency to gild our memories of decades gone past and that can distort reality.

    For example: when I looked back at December 1973, I expected to see a renaissance of classical rock musicians on the top of the billboard charts.

   Yes, Bowie and Lennon and Ringo and McCartney’s Wings were all on the list. But the top five spots for the top 40 singles were occupied by (and I’m not making this up) the following:  Gary Glitter, Marie Osmond, New Seekers, Alvin Stardust, and the Osmonds.

  So much for the good old days.