From New Year’s Eve through Presidents’ Day, gasoline prices surged by 35cts gal nationwide, with some West Coast states moving as much as 50cts gal above their December multi-year lows. A panic-prone public inaccurately concluded that we could be looking once again at $3.00 gal fueling costs as early as May.
A funny thing happened last week, however. Wholesale prices for gasoline dropped by as much as 30-35cts gal, depending on the regional market. Retail prices gave up more than 5cts gal of the gains that accrued in January and February, and may soon flirt with levels below $1.90 gal.
December 30, 2008 Retail Unleaded Regular - $1.616 gal
February 15, 2009 Retail Unleaded Regular - $1.966 gal
February 22, 2009 Retail Unleaded Regular - $1.917 gal
For more details, visit www.fuelgaugereport.com
Eleven states - - - Alaska, Arizona, California, Connecticut, Hawaii, Maine, Nevada, New York, Oregon, Washington, and West Virginia - - count average gasoline prices above $2.00 gal at the moment. This number may actually decline before March commences. That’s not to say that March won’t deliver some madness in volatile fuel price swings - -- that is the template even when the economic backdrop is sleepy.
Public and private companies like to segregate their performances in calendar quarters. But we’ve completed an eighth of 2009 -- -it’s been a good 8th for refiners; a miserable 8th for most oil producers; a very rough 8th for gasoline retailers; and a numb 8th for the panoply of end-users of fuel.
Scary Skinny?
The severe winter temperatures in the northern hemisphere fade into history each March. This winter has been colder than normal. That has hidden some considerable flaws in the commercial and industrial economies.
Think about it this way. If you run into Lindsay Lohan in the depth of winter on the streets of New York, you are likely to see her clothed in heavy garments - - fashionable, of course – and think that nothing is amiss. Similarly, the Olsen Twins might be clad in an assortment of heavy coats, scarves, and layers when they venture into the city to check on the tens of millions of dollars they made on the backs of Moms and Dads paying for G-rated videos that could keep their toddlers off the streets. (I am a bitter parent)
As long as it’s cold, the clothes obscure what’s underneath. With warmer temperatures come more revealing garments. Already, there is concern that Ms. Lohan is “scary skinny” according to those impeccable scribes at E! Online, The New York Daily News, and even The Times of India.
When winter ends, we’ll find that demand for fuel such as transportation diesel, kerosene, and jet fuel is also anorexic. The cold temperatures have led some of this fuel to be burned to generate heat - - for example, when Vladmir Putin shut off natural gas to the Ukraine in January (“Those Ukraine girls really knock me out,” he is rumored to have said at the time) barrels of diesel or jet kerosene were diverted to boilers.
The scary skinny numbers for the middle of the petroleum barrel - - the distillates such as diesel and kerosene - - will be revealed in the next 30 days. Diesel prices have been in a virtually uninterrupted downtrend since last July - - -the average price of all nationwide pumps has dipped below $2.27 gal and many truckstops are a dime lower. Demand is poor, awful, or “scary skinny” on any scale.
Speaking Of Oil In Person . . .
This Tuesday, I’ve been granted a forum to essentially run amok with 45 minutes of observations on the state of U.S. and global oil markets. I’ll be speaking at a New York City breakfast hosted by a leading commodities software company - - Solarc. Details are provided in the link below:
http://www.24-7pressrelease.com/press-release/experts-to-present-at-2009-global-oil-and-gas-forecast-solarc-86137.php
I’m a bit intimidated by fellow presenters, some of whom have sophisticated backgrounds in engineering, physics, etc. Permit me to make a digression.
My chosen profession of journalism was rooted not so much in a love of the English language, but rather, in an aversion to some of the requirements of engineering, physics, and science.
The greatest intimidation came when I was introduced to the “imaginary number”, which you’ll recall is the square root of a negative one, and is written via an italicized “i”. Yours truly (I) had a great deal of trouble with that concept, and it was at that point that I began to take English and History and Journalism much more seriously. I’m still not comfortable with the fact that many bridges are constructed upon mathematical calculations that use this imaginary integer - - are those bridges really there, or do we just imagine them?
I have concluded, however that we deal in a lot of imaginary numbers these days, whether they come in corporate disclosures, the Federal Reserve minutes, or some of the pro forma calculations for toxic assets. Most bank branches should italicize their logos as fair warning. At the very least, italicize the “i” in p-r-o-f-i-t.
End of digression. Back to the New York City forum. Inspired by the British author Jay Griffiths, who wrote a brilliant book called A Sideways Look At Time, I have decided to take a sideways look at oil prices and supply.
Some of the observations I’ll put forth include:
- If measured in terms of how much gold is needed to buy a barrel of crude, oil prices are currently as low as they were in 1999 when we saw WTI futures dip below $10 bb. That is good news for Mr. T and many would-be extras on The Sopranos, but not necessarily good news for the world.
- Oil price savings have been a sideshow as one considers the prospects for economic recovery. We’ll shortly see numbers that show the average American home value has declined by about $10,000-$12,000 since the gasoline price peak of $4.11 gal in July 2008. If fuel prices remain extremely subdued, we might see motorists spend about $600 less in the first six months of 2009, versus the same period in 2009. So, that would offset only about 5% of the wealth that has slipped away from the home equity that was in retrospect the huge piggybank or ATM that fueled the consumption binge. Lower oil prices are good news for the millions of renters who live from paycheck-to-paycheck, but they are much less critical to the fate of those owning property.
- In the world of volatile wholesale prices, the nickel & dime have become the new penny. Through the 1970’s and to some extent, the 1980’s, it was common to see wholesale prices vary by perhaps 1cts gal or less each day. Now, we regularly see wholesale per diem swings of 5-10cts gal with retail prices moving by about that much on a weekly basis. Years ago, I was told by the executives at several futures’ exchanges that there was not enough volatility in retail prices to support a vibrant futures contract for say, the daily U.S. gasoline price average. It might be time for a reassessment of that position.