June will mercifully end on Monday, and my back-of-the-envelope calculations suggest that Americans will have spent a record $48-billion on gasoline during the month. Unfortunately, the hypothetical July invoice will probably be above $50-billion. I’ll have more on that calculation in a moment.

   But first, let me vent a little steam. June hasn’t brought any relief on prices, but it has delivered plenty of wind power from Washington, New York, London and other key cities that mix the ingredients in the global oil trading stew. Each side is courting its base. The dialogues between democrats and republicans is reminiscent of the hillbilly Hatfields and the McCoys. We listen each day to dueling banjos from those with vested interests to protect and meanwhile, the gasoline retailers, distributors, customers, and even refiners, are getting the treatment accorded to Ned Beatty in Deliverance.

   Think of the oil trading business as a superhighway – much akin to the Garden State Parkway in New Jersey, which (and I am not making this up) is on the verge of having about 24 lanes of traffic crossing the scenic Raritan River.

   Now imagine that a series of tragic accidents have occurred on that highway. One faction wants to close the highway, and ban vehicular traffic. That is hardly a sensible solution. However, the other faction wants to make sure that there are no encumbrances, even if that includes open ended speed limits. The trading pit as autobahn has delivered us $142 bbl crude in the meantime.

   Somewhere in this debate, there is a compromise that makes sense but in the meantime, we are speeding along on a very destructive path. We need some speed bumps, traffic lights, or limits, but none are likely before Autumn.

The $50-Billion Month

   Gasoline prices are likely to soon top $4.10 gal nationally even though Americans are using less motor fuel than they did in 2007.

  With four days left in June 2008, the average nationwide price for this month is currently $4.04 gal. We’ve been using about 393-million gallons of gasoline per day. That adds up to a daily average bill of $1.588-billion, and a monthly total of say $47.6-billion.

    Using three different models, I project U.S. gasoline demand for July to be anywhere from 398-million gal/day to 401-million gal/day. If you plug in the current average gasoline price of $4.066 gal, that calculates to an average per diem cost of $1.63-billion and a monthly aggregate of $50.5-billion.  Last year, we spent about $38.4-billion during July. In 2003, the July bill was less than $18-billion.

Inverse Proportions

   When you were in middle school, you no doubt learned about proportions. One of my favorite examples is the Stephen Wright aphorism: “The hardness of the butter is proportionate to the softness of the bread.”

   For much of the second quarter, we have witnessed an inverse proportion with oil and equities. Particularly in June, money has exited U.S. stocks and poured in to all commodities, but most conspicuously, into crude oil.

   This can’t continue indefinitely. World equities markets have joined the U.S. in a tailspin recently, and much of the money in global bourses is now on the long side of crude oil and metals.

   Keep in mind that the oil business is a macroeconomic business. Price increases have slowed the U.S. economy and now appear to be curbing growth in other parts of the world. If financial markets continue to slide, oil has to join that parade eventually.

Some Random thoughts  . . .

-         My Outlook quarantine file has been jammed with email messages saying “you look stupid, tkloza” this month. I can only conclude that these folks read some of my earlier ill-conceived but very temperate predictions on gasoline prices that remain posted on my blog.

-         Don’t believe some of the numbers you here tossed around from the talking heads on the cable networks, particularly when it comes to the cost of finding new oil. One CEO this week gladly let the host assume that the cost of finding new oil was in the $75 bbl range. It’s not. Check some annual reports and you’ll be shocked at the lower numbers.

-         More talk about hydrogen is filtering into the discussions of possible solutions for this energy mess. The biggest problem for hydrogen, however, may be the challenge of refilling the vehicles. As one refiner once told me: “I have trouble getting my dealers to ‘make change’ for a dollar, and you want them to ‘make’ hydrogen?”

-         The Wall Street Journal has reorganized and appointed a “troika” to run their news business. If we pursue a Russian-style organization here at OPIS, I have dibs on becoming the next Josef Stalin.

-         Peak hurricane season is about 50 days away, but I expect hurricane hype season to get underway in the second half of July. You’ll be able to tell who has money tied up in oil futures by the models they’ll use for potential hurricane paths. If I owned oil futures, I would replace the spaghetti models (where thin strands point to likely landfall areas) with one big strand of oversized fettucine that hits the Texas Gulf, moves up the Houston Ship Channel and then proceeds to refining centers in Chicago. Be careful: most hurricanes destroy demand, and rarely impact long term supply.

-         It’s not just oil that has skyrocketed higher. Steelmakers increased the price of raw steel this week by 33% in the U.S., and China was blamed for the price hike. Are the Chinese planning to make the Great Wall more lasting by covering it with stainless steel?

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