Gasoline prices just surpassed $2.31 gal, rising 26cts gal in the last month. Nationwide numbers, as compiled by OPIS for AAA are now about 70cts gal below the multi-year record low set on December 31, 2008. Today saw wholesale prices increase by 7cts gal, so retail will move higher in the next 24-72 hours.
Meanwhile, average U.S. prices for diesel moved beneath average prices for gasoline for the first time since July 24, 2007. Cynical footnote: I have some expert investment banking analysis from that month that talks about the retreat of the S&P 500 from the 1553 level. The scribes of that blue sky report noted that the retreat was “normal and healthy.” One might wonder if those same writers would describe the Ebola virus in similar terms.
At one point, diesel at the pump fetched a 93cts gal premium to gasoline. Since you get more bang for your BTU with a diesel vehicle (think 40 mpg instead of 25 mpg) one might conclude that sales of diesel powered vehicles are accelerating. I am aware of no such trend, however.
For regular readers of this column, a first and second quarter gasoline price rise is nothing new. Indeed, I coined the word petronoia” for the predictable phenomenon of Spring gasoline price increases. The word was subsequently purloined by that cad-actor George Clooney and used in his muddled mess of a film - - Syriana – but we all got even when Leathernecks bombed at the box office last year.
This Spring gas rally has overcome more obstacles than Derby winner “Mine That Bird” however.
Talk about a sloppy track. U.S. demand remains poor, there is at least 2.5-million barrels per day of extra U.S. refining capability on the shelf, unemployment has stifled much of the work-related driving, and gasoline imports promise to displace plenty of U.S. produced fuel from June through December.
Ultimately, these factors point toward prices not matching the high numbers witnessed in 2005, 2006, 2007 or in the first ten months of 2008. The oil price phasers are nearly always set on stun in the second quarter.
My personal belief is that this rally is a bit long in the tooth. Let’s disregard last year as a fluke, outlier, or rogue period where nearly everyone managing money lost their heads. Through two decades, one standard historical indicator has often popped up and signaled that a top is near. That indicator is the sudden rush to do “Look, It’s Spring and Gas Prices Are Up!” segments on network, cable, and internet news programs. That is happening this week, but I’m one step ahead of you folks, and as I am wont to do, I have assembled my own Q&A interview to answer some of the typical questions asked, as well as some that should be asked.
Herewith:
Q. How much will Americans spend on fuel for the upcoming Memorial Day weekend?
A. Based on typical daily demand trends, we’re collectively spending about $875-million each day on gasoline, compared with $777-million per day one month ago, and over $1.4-billion each day in late May 2008. Doing a little back-of-the-envelope arithmetic (and adjusting for holiday travel) the Friday-Monday Memorial Day weekend will probably see average daily expenses of $910-million to $920-million this year. Let’s round it off, and say $3.7-billion for the entire weekend. Last Memorial Day weekend, we spent more than $6-billion on fuel.
Q. Earlier this Spring, the Energy Information Administration (EIA) predicted that gasoline prices this driving season would average $2.21 gal, with a peak of $2.30 gal. Was that forecast flawed? Is it still reasonable?
A. The EIA forecast was measured, well researched, temperate, and reasonable. Unfortunately, all of those characteristics can be fatal flaws in forecasting crude oil or gasoline prices. Markets this Spring have ignored macroeconomic statistics and petroleum supply and demand data, and retail gasoline has already exceeded the $2.30 gal implied ceiling. I still believe that the $2.21 gal “driving season” average predicted by EIA is very much in play, but the country may take a shot at $2.40 gal or even $2.50 gal before madness in markets runs its course. Markets love excess, like a good beer likes a frothy head. Ultimately, the froth gets removed.
Q. What do you see as a reasonable and an unreasonable peak for Summer gas prices?
A. If gasoline prices nationally hit $2.50 gal, I wouldn’t be surprised. If they hit $2.75 gal, I would. If they exceed $3.00 gal, I will have to go into the witness protection program.
I am on record in print, audio, and video as suggesting that $3.00 gal or higher is not reasonable for 2009. I even suggested in a recent CNN interview, that I would come onstage and make out with Larry King if we got to $4.00 gal gasoline in 2009. I sincerely do not want to do that.
On a March MSNBC spot where I shared the green room with Uno (the 2007 Westminster Kennel Club best-in-show) I said that I would return to the studio and bark at the moon with the famous beagle if we hit $4 gal this year. I don’t wish to do that howling, although it would be preferable to liplocking with a suspender-clad newsman.
Q. The fast money crowd talks about green shoots and says that markets are anticipating economic recovery, and hence they’ve moved higher. Do you agree?
A. No. There are very talented people and great reporters within the economic press, but there can be a collective bias that pushes this coverage into what I call Business Al-Jazeera mode.
Petroleum demand is quite poor. The trend has been toward less gasoline demand destruction of late, but there’s no compelling evidence that suggests gasoline demand is up more than a fraction of one percent from last year, at best. It is well below levels of 2005-2007, for the most part. Diesel demand is plain awful, and the need for commercial fuels like lubes and residual fuel is closely tied to economic activity, so demand for those specialty products are at or near ten year lows.
Q. Some folks say that higher fuel prices represent good news in that they’ll provoke more conservation, mass transit, etc. Is that your view?
A. In my view, the consumer is still suffering from flu-like symptoms. We need sharply higher prices like Paula Abdul needs another layer of make-up. The numbers that we’ve seen recently don’t represent a hindrance to recovery, but prices of $2.75 gal or more might inflict some serious economic damage.
Separately, however, I do have to say that I live within two miles of a train station that connects with Penn Station in New York. The distance from my town to Penn Station is perhaps 62 miles. It generally takes at least two hours for the train to make the trip, and it stops in every hamlet along the N.J. coast. One might think that it should be easy to cut this time by at least a third.
Q. What about 2009 hurricane season? Doesn’t that make us vulnerable to sky high prices?
A. Because of extra refining capacity, and a glut of crude that should continue well into the third quarter, the U.S. should be much less susceptible to a hurricane-induced price spike this Summer and Fall.
And remember, hurricanes just don’t wipe out refined products output - - they also wipe out considerable demand. A hurricane would have to have an almost cartoon-like affinity for Gulf Coast refining centers to create a price spasm similar to what happened after Hurricane Katrina in 2005.
Q. Why don’t you twitter?
A. I still associate twittering with self-absorption or the ill-conceived notion that there is an audience just waiting to be updated on my words, prophesies, aphorisms or spontaneous but well-planned criticism. If British prime ministers Disraeli and Gladstone had access to the net, would they have moved their witty banter to the ether world?
Benjamin Disraeli’s famous definition of a bore is “one who has the power of speech but not the capacity for conversation,” and I wonder whether we’re not pursuing a course that breeds a legion of same.