You will see much higher retail prices for gasoline, diesel, and heating oil by the end of next week thanks to a foundation laid in wholesale markets in the last eight days.

     Since the close of business on May 1, crude oil prices have surged some $13.44 bbl. Wholesale gasoline has spiked some 25.4-39.55cts gal, and wholesale prices for diesel are up as much as 49.33cts gal. Northeastern heating oil has gained 51.83cts gal in the same eight days.

  Annoying footnote: In eight days, market forces (we can debate what those are at a later date) have delivered price increases that are more than twice the stature as the “gas tax holiday” proposed by Senator McCain, and supported by Senator Clinton. I would like to propose an annual income tax holiday, for everyone born on November 12. (Liz Taylor may have me over for lunch if Michael Jackson is not available).

   There are already screams at the pump, but retail gasoline prices have increased by less than 5cts gal in those eight days, and retail diesel values are up by less than 2cts gal. It does not take a rocket scientist to figure out that street prices will see a huge updraft in the next few days. Gasoline retailers have three choices: (1) they can pass along wholesale increases and muddle along with measly profits on fuel; (2) they can swallow the increases and hope that the wholesale market turns before bankruptcy looms; (3) they can adopt the business plans of air carriers and lose vast amounts of money quarter after quarter, with the currency losses exceeded only by the amount of luggage they can lose.

   Consumers and end-users are clearly about to get hit by some of the stiffest increases in 2008 that are only now working their way through the distribution chain. Today’s finishing numbers for gasoline project to retail unleaded quotes of above $3.80 gal by the middle of next weeks, or some 13cts gal or so above current quotes. Retail diesel prices could soon be on the threshold of a $4.50 gal average, well above the record $4.2686 gal average posted today in the OPIS report for AAA (See www.fuelgaugereport.com for details).

   Here’s a look at where wholesale prices end this first full week of May that has seen new records established for every single product in the petroleum supply chain. Refined product values represent numbers garnered near the close of business from the real time OPIS Spot Ticker, which tracks actual spot market trading in seven U.S. bulk markets. For more information or a free trial,

visit http://www.opisnet.com/market/spotwci.asp

Venue & Product      May 1, 2008         May 9, 2008            Change

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

NYMEX Crude            $112.52 bbl         $125.96 bbl            +$13.44 bbl

NYMEX Gasoline       $2.8782 gal          $3.2012 gal            +  32.30cts gal

NYMEX Heating Oil   $3.1177 gal         $3.6360 gal             + 51.83cts gal

Gulf Coast Unleaded    $2.7632 gal        $3.1187 gal              + 35.55cts gal

Gulf Coast Diesel         $3.2677 gal        $3.7435 gal              + 47.58cts gal

Chicago Unleaded        $2.8057 gal        $3.2012 gal              + 39.55cts gal

Chicago Diesel             $3.2652 gal        $3.7585 gal              + 49.33cts gal

Los Angeles Unl          $2.9645 gal        $3.2187 gal               + 25.42cts gal

Los Angeles Diesel      $3.3227 gal        $3.8110 gal               + 48.83cts gal

   For the benefit of first time readers - - I’ve also appended an earlier post that looks at what one might expect if some Wall Street analysts are on target with predictions of $150 bbl to $200 bbl crude.

SUPERSPIKE & SUPERBAD, OR WHY I AM NOT A MOTIVATIONAL SPEAKER

   This is hastily written so forgive me if I don’t litter this post with classical references, witty attribution to pop culture, and the normal sense of humor that I generally sprinkle through these screeds.

   Crude oil prices closed at $123.57 bbl today, up $1.73 bbl on the day. There is some not-so-wonderful symmetry- - - the crude price on this day a year ago was $61.47 bbl, so we have now seen an increase of more than two-fold.  I continue to believe that this is largely the result of speculative excess, and I invite readers to revisit some previous posts for reference to that excess.

   But first, let me address what this means in terms of immediate consequences. Crude oil at $123.57 bbl translates this year into wholesale gasoline prices of between $2.99-$3.16 gal, or roughly $125.60-$132.72 bbl. Refiners aren’t beneficiaries of the higher crude values; they are largely victims. Every segment downstream of the wellhead is also feeling some pain.

   The price spike of the last four business days means that the pump prices will soon be between $3.60 gal and $4.00 gal, and I suspect the nationwide average will probably cross $3.70 gal in the next few days.

   A very well researched report issued by investment bank Goldman Sachs earlier this week warns of a “superspike” to $150-$200 bbl crude. I’ve been asked to detail how this might translate to a pump near you. Media types may have watched the DVD recently of SuperBad, which I predict will not be nominated for an Oscar.

    Here’s my best shot at providing guidance on retail numbers:

   A crude price of $125 bbl translates into about $3.70-$3.75 gal at the pump. We’re knocking on that door right now, and some of the more expensive locations like Chicago, New York, and California are higher - - in some cases over $4.00 gal.

  If refinery margins remain static - - they are actually quite depressed for gasoline, which is regarded almost as a byproduct in recent weeks - - each $10 bbl increase in the price of crude translates into a price increase of roughly 25cts gal at the pump.

   If we get above $130 bbl, it puts the $4.00 gal apocalyptic national average squarely in the cross hairs, as less of a rogue price, and more of a routine number. I have been calling for a peak of around $3.75 gal, so it would represent a market that has gone beyond the realm of what I thought might be predictable increases.

   The basic back-of-the-envelope metrics, given the assumptions that refining margins match recent levels are as follows:

  Crude Price                                Nationwide Retail Prices

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

   $135 bbl                                      $3.95-$4.00 gal

   $150 bbl                                      $4.32-$4.37 gal

   $175 bbl                                      $4.95-$5.00 gal

   $200 bbl                                      $5.58-$5.63 gal

Note: These are just general ballpark numbers, and don’t take into account refining “events”, hurricanes, or other threats to U.S. refining infrastructure. The 2008 price rise hasn’t been about the U.S., and it hasn’t been about refining. It’s been focused on the perception - - not necessarily the reality - - that crude oil could be in short supply as the year progresses.

Footnote: Refining margins for diesel are much much higher than those for gasoline. A $125 bbl price for crude translates into a retail diesel price of about $4.30-$4.40 gal. Each $10 bbl increase in crude would tack on about 25cts per gal. So at $150 bbl, we would be looking at diesel prices on the threshold of $5.00 gal. It puts heating oil into the same neighborhood.