The last six days represent the U.S. oil business in microcosm - - particularly as it relates to the bipolar nature of “the market”. Gasoline futures, as well as the wholesale prices for Gulf Coast based quantities of motor fuel advanced by 20-35cts gal in the last few days of August on the premise that Hurricane Gustav could remove millions of barrels of gasoline and diesel production. The storm made landfall on Monday, and prices  subsequently dropped by 20-40cts gal. Should we base our predictions of where retail prices are heading based on the first three days, or last three days of that cycle?

   First of all, let’s bid adieu to Gustav, which created a mess for U.S. refiners in Louisiana and for the hundreds of people who make their living by scheduling crude oil barges and pipeline slugs into refineries. It is a mess, but it is a manageable mess, and its impact will be measured in days, and not weeks like Hurricane Rita, or months like Hurricane Katrina.

   This reminds me of one of the sacred tenets that veteran oil traders recognize, but which appeared to be ignored by the new financial greenhorns.  Hurricanes that make U.S. landfall always destroy demand - -particularly for crude oil. More uncommonly, they can but usually don’t destroy gasoline and diesel production.

Some Numbers

    The nationwide average price for gasoline stands at $3.681 gal today, and we’ll use the crutch word of the meteorologists and suggest that this figure will “wobble” north and south over the rest of the week. You may see some price increases in Gulf Coast and lower Atlantic Coast states, but price decreases may be the norm elsewhere. A longer term view suggests that this September will follow the model that the ninth month tends to follow in most years, with prices under downward pressure.

   I wouldn’t get too excited about this price relief, particularly if I were a money manager hoping for new life in the U.S. economy. Today’s price projects to an average daily gasoline cost of $1.455-billion for Americans, about $260-million more per diem than last year; and a whopping $800-million or so per day more than citizens paid on September 3, 2003.

Back to the Belushi Reference

   John Belushi was always my favorite performer on Saturday Night Live, but his lifestyle was such that he made Who drummer Keith Moon seem like Marvin Hamlisch in comparison. Friends and associates observed that Belushi lived life with an irregular heartbeat, with violent mood swings that ultimately resulted in his untimely death.

   The 2007-2008 oil markets seem to have a similar disdain for anything resembling stability. Less than two months ago, we saw crude oil trade for $147 bbl. Yesterday, we saw crude oil close at $109.71 bbl, it’s lowest settlement since April 8. It has traded for as little as $107.32 bbl Wednesday morning, despite the specter of an OPEC meeting less than a week from now.

   Gulf Coast gasoline, which is the benchmark for wholesale prices in perhaps 60% of the country, traded for as much as $3.10 gal going in to the weekend, but this morning finds 87 octane motor fuel there priced around $2.90 gal. The next time you see a petroleum tanker truck pass you on the highway, imagine that the cost of the fuel in that 8,000 transport can vary by $2400 depending on whether it is purchased on a Tuesday or a Wednesday. Even walk-up airfares appear stable compared to fuel prices these days.

   All oil prices have had an irregular heartbeat this year, with wild mood swings. At the moment, the madding crowd believes that gasoline will be plentiful this Autumn and by extension holds that the investment bank predictions of $150 bbl crude by year’s end are subject to statistical ridicule.

Odds & Ends . . .

   I counted about two dozen self-proclaimed or media-anointed energy experts on the networks this weekend. None of the male mavens had hair that matched the standards of yours’ truly.

   Many of the interviewers guided analysts toward extreme predictions, in what I would call the Jim Cramer effect.  The market is always headed “to the moon” or “into the toilet” according to the bald and boisterous boo-yah man. He has channeled his inner Belushi into a rhetorical repertoire which continues to reward him quite handsomely.

   Oil markets assumed a “prove it to me” attitude in mid-July, and I suspect they’ll retain that skepticism through year’s end. Extrapolations about supply possibilities were enough to guide oil higher through the first 200 days of 2008, but the realities of demand will be more important in the final 100 days. Demand for gasoline typically falls off by about 440,000 bbl per day after Labor Day.

   Speaking of demand, a story in this week’s Oil Express notes that a survey by the National Association of Truck Stop Operators (NATSO), found that diesel sales among its members were down by 5.2% in June 2008, when compared on a year-on-year basis. These are numbers we have been hearing from marketers for some time, but Department of Energy data suggests that diesel demand is higher. The wildcard in this demand dissonance comes via exports, which probably helped 400,000 bbl per day or so of diesel disappear from storage in the Spring and early Summer.