The last reference in the headline is stolen from a pertinent question posed in Monty Python and the Holy Grail and is my favorite moment of the movie. I’ll talk more about that in a bit.  I wish that the Pythons would reunite and put together a satire of the global financial markets. As Mark Twain noted, all humor is based on imperfection, and a capable comedy troupe has a treasure trove to mine these days.

   U.S. gasoline prices averaged $1.96 gal today, and $2.00 gal plus numbers are commonplace in perhaps half of U.S. states. This is not chapter one of the next oil price apocalypse, however.  I did a couple of appearances on MSNBC last Sunday, and one such “hit” preceded Uno, the 2008 Westminster Kennel Club champion. Alex Witt asked me if I anticipated a return to $4.00 gal and higher gas prices this year. I said (on air) that if we saw that, I would gladly crawl into the 30 Rock studios on all fours and howl at the moon with Uno.

   I could have made a much safer prediction. Uno and I shared the green room in preparation for our appearances. I feel comfortable in suggesting that it will be the first and hopefully last time that a male guest on MSNBC licks my face before airtime.

The Question Everyone is Asking

 The vexing question is why have gasoline prices moved some 35cts gal higher in 45 days when crude oil continues to be relegated to the dumpster?

   There are multiple and related answers to this question. The price most people reference is the near term futures price for West Texas Intermediate (WTI) crude that is traded on the NYMEX.

   We traded almost 800-million bbl of WTI (in various months) in yesterday’s NYMEX trading. The United States produces about 200,000 bbl each day of this blend, so the transactions yesterday represented about as much WTI as will be produced in the next eleven years. The price quoted for WTI is much more of a proxy for sentiment in global energy markets, and much less of a true benchmark at the moment. North Sea crude that would ordinarily sell for say $1 bbl below WTI has fetched as much as $10-$12 bbl above WTI in the last 24 hours..

   Refiners who run WTI or WTI-lookalike blends of crude are lucky, just as they were unlucky through much of 2008 when WTI crude prices exceeded the wholesale numbers for gasoline. But there is a huge panoply of crude oil blends, and many of the grades have disconnected with this paper or futures’ price. Some refineries are enjoying renaissance-like margins, but the Dark Ages had them in a vise grip less than two months ago.

   Put another way, the price most reporters and most traders quote for crude these days (NYMEX WTI) is not necessarily indicative of the entire league. You might say that WTI is the Detroit Lions of crude in 2009. Or, if your predilection is boxing, you could say that WTI is doing as well as George Chuvalo or the Quarry brothers did against Ali.

An Early Spring?

   I looked back at the last couple of Presidents’ Day weekends where crude oil fetched about $35 bbl or so. In 2003, we saw WTI futures at numbers virtually indistinguishable from present 2009 quotes, and retail gasoline averaged $1.62 gal. In 2004, crude was in the $35 bbl neighborhood and pump prices averaged $1.64 gal.

   Ironically, we spent much of late June 2004 at about $35 bbl for crude and the retail pump price was $1.91 gal. So, this isn’t really virgin territory when one measures the gap between raw cost and retail number.

   The difference, of course, is that retail prices of $1.91 gal in late June are understandable, as perhaps are refinery margins of $15-$40 bbl. That’s when demand is on a clear upward arc, and in some previous years, it was difficult to make enough finished gasoline to keep America moving.

   My instincts suggest that Spring has come early this year. Markets don’t wait, and gasoline already reflects the expectation that refiners will continue to carefully produce only enough product to keep supplies balanced or tight. The 35cts gal or so increase that we’ve seen this year might ordinarily occur in March, April and May. It’s unheard of to expect gasoline prices to be higher on St. Patrick’s Day than they are on Memorial Day, but something close to that could happen in 2009.

  By the way, it’s not insignificant that we could soon see a national average of $2.00 gal or more. The U.S. economy is all about confidence and sentiment and many consumers are conditioned so that they regard a price that begins with a “2” as an auger of a “3” or “4” to come.  People react to changes in local gasoline prices in the same way that Uno reacts to a squirrel, or a bull reacts to a red flag, or Tom reacts to the over-exposed Jonas Brothers. Most financial analysts don’t get the emotional component of in-your-face prices each day.

Odds & Ends

-         As the only oil analyst with a rap name - -Pump Daddy - -- I was disappointed that I was not invited to the hip/hop summit at the Grammy awards last Sunday. Come to think of it, that suggests another SAT-like analogy.  WTI futures-are-to-global-crude-values as The Jonas Brothers-are-to-The Beatles.

-         A cold winter covers up a lot of weakness in some petroleum demand segments. When temperatures warm up in the northeastern U.S. and Europe, we’ll see just how miserable commercial demand is for products like diesel. We’re definitely on a course that could see diesel pump prices at or near gasoline numbers this Spring.

-         I spent some time last week chasing down a perverted perpetrator of pork on the web.  Click on the link below and you’ll think that my blog is sponsored by the other white meat.

            http://bacolicio.us/http://blogs.opisnet.com/archive/2009/02/06/reflation-for-fuel-prices.aspx 

  Back to the Swallows

   I was reminded of the Monty Python question after constantly being asked about why gasoline and oil had moved in opposite directions.

   The classic question posed by the bridgekeeper in the movie was “What is the air-speed velocity of an unladen swallow?”

   Those that couldn’t answer the question were catapulted into oblivion, but the bridgekeeper received his just desserts when he was asked whether it was a European or African swallos.

 For the record, the answer is 40 to 50 miles per hour.