With inspiration from John McCain, who this week proposed a driving season fuel tax holiday, I’m presenting this post in the form of a Q&A. And much like John McCain does when he makes his various media appearances, I’m interviewing myself.

   (Note to zealots: this is not an endorsement or a criticism of Senator McCain. God knows, there are enough partisan posts in the ether world, and the public needs more political commentary in the blogosphere about as much as we need more coverage of the Hilton sisters)

   First, here’s the in-game box score: The nationwide price of gasoline today stands at an all time high of $3.445 gal. I believe that is the highest adjusted-for-inflation price as well, unless one is talking about 1990’s style inflation in Argentina. The average price of diesel today (the quiet crisis’ product) is a record $4.168 gal.

   Americans will spend about $1.35-billion today on gasoline. That compares with $1.1-billion on this day in 2007, and with $514-million on April 18, 2002.

What’s the outlook for Spring gasoline? We’ll probably see the national average top $3.50 gal within the next week, which coincidentally represents the bottom of the $3.50-$3.75 gal target that I suggested as the likely peak early in 2008. I’m not surprised that the price of fuel has advanced steadily through this point, but I would be surprised if this trend continues unabated into late May. I still do not believe that a $4.00 gal average price is reasonable, given a sluggish world economy and the underlying supply and demand fundamentals, which at some point, will become the paramount issue in U.S. markets.

Is there anything different about this year’s rally?  I’m glad you asked that question, because this year’s surge has much different roots than other spikes this decade.

   This year’s increase is all about crude oil, and more specifically, all about the abstract value that investors and speculators will pay for benchmark crude. Crude oil prices started 2008 around $100 bbl, fell to $87 bbl just after Groundhog Day, and currently stand at about $115 bbl.

    The price of crude oil in mid-April 2007 was about $63 bbl. So, year-on-year, crude oil costs $52 bbl more today than it did twelve months ago. There are 42 gallons in every barrel, and that translates into a raw cost increase of about $1.24 gal.

   Gasoline prices on the street (I love the term “street prices”  .. . do some countries post fuel prices in the meadow, lea, or canyon?) are up less than 60cts gal from the same day last year. So, this year’s increase is totally attributable to crude, and not to windfall refinery profits or any increase in the other elements of the supply chain.

I’ve read a number of stories recently that say speculation is not responsible for high crude oil prices. Is that true?   I would advise you to take those stories and put them in an anthology, and call it the “Caca Chronicles”.  I believe that most of the purveyors of the speculation-is-not-driving-oil-prices-higher theory are delivering bloated pompous horsebleep in rhetorical disguise. I have even thought about stopping at the local horse track, and picking up some horsebleep to send them, so they can tell the difference.  Many of the thought leaders who downplay the speculative component of oil prices have a vested interest in the markets.

   In all seriousness, there is an issue of semantics here. Many of those critical of oil price spikes are right to suggest that speculation gets a bad rap. As Randy Newman said, “it’s money that matters.”  A great deal of money has been invested in oil futures, options, and derivatives. Some of that money is passive and perhaps quite patient, and reflects an expectation that the early part of this century will see all resource commodities in short supply. So, it’s not necessary of a speculative fabric. But remember that Krispy Kreme and Real Estate surged similarly on investment flows in the last ten years, and it’s often difficult to find the thermocline that separates investment and speculation.

Who are the big winners & losers in this drama? The big winners are the exploration & production companies, and any entities with oil in the ground or at the wellhead. The futures and derivatives’ brokerage communities are also doing quite well since trading volumes have grown explosively. And those prescient enough to have bought into the “to the moon, Alice” mantra of the 2007-2008 oil market have hefty profits as well.

   Surprisingly, refiners have been among the losers. The publicly traded refineries will release earnings in the next three weeks, and those earnings will be ugly, particularly when compared to first quarter reports from 2003-2007.

   The further one gets from the wellhead, the greater the pain inflicted. Many gasoline distributors and retailers stand on the brink of bankruptcy. The cash flow problems that come with $115 bbl crude and $3.45 gal retail gasoline are daunting. Back in 2002, one of those tanker trucks passing you on the road might typically cost a dealer about $10,000. Today, that same tanker load of fuel costs about $30,000.

   Retail gross profits have actually declined this decade. The benchmark misery year in the last decade was 2002 when gross margins were about 12cts gal on most gasoline sold across the U.S. That number represented a gross return of about 7% based on the cost of gasoline at the time. Nowadays, the gross margin is under 4%, and credit card fees eat up most of this number.

   Credit card processing companies are among the big winners, by the way. If you buy your gasoline with bank-issued plastic, the bank might collect a 2.5% fee on the sale (payed by the merchant). So the credit card company might make about 8.6cts gal on every purchase of regular gasoline, a number far in excess of what the retailer makes. It’s enough to give gasoline retailers a “case of the vapors”.

You started this post with a reference to John McCain. What do you think of his proposal to suspend the 18.4cts gal federal gas tax this driving season?  First of all, there is no such thing as the driving season any more. There is far less lumpiness between how much gasoline is used in say April versus July than there was five or ten years ago.

   But, I do think it is a bad idea. Both sides of the political aisle talk about energy independence, but no one talks about energy discipline. The straight talk would dictate that politicians acknowledge that responsible and disciplined energy use a critical ingredient in cooking up a solution. Anything short of that is just plain caca.