What will be more expensive when summer ends?  

   A barrel of crude? Or, a plain cheese pizza at the brand spanking new Cowboys’ stadium?

    Right now, crude oil has the edge - - it fetches a price of just under $70 bbl compared with a mere $60 quote for the 20 inch cheese pizza (with no toppings) in the new luxury boxes for the Cowboys. I’ve had good food in Texas, but once you get south of New Jersey or Chicago, the pizza is pedestrian.

   I suspect we may see crude oil visit $75-$80 per barrel some time before my Giants visit the Cowboys on September 20 and dash the ‘Boys pathetic hopes. I’ll talk more about crude and the factors that have kept prices near ten month highs a bit later.

  First, let me render a U.S. fuel scorecard since my last update. A combination of personal vacation, always highly popular and well-received speaking engagements, and filling in for colleagues on holiday have all conspired to keep me away from blogging for  more than a month. The internet may have reached its zenith since then, however, as I note this week that the wife of Twitter Chief Executive Evan Williams “tweeted” regularly during childbirth.

   There was no Twitter when my wife gave birth to my youngest daughter, so she instead did a wonderful impersonation that could only be accomplished if we could create a trans-species beast that had the characteristics of a pterodactyl as well as Linda Blair from The Exorcism.  Tweet, Tweet.

Here’s a quick box score that compares fuel prices with where they were when I got writer’s cramp:

-         The average price of unleaded gasoline stands at $2.647 gal, about a nickel short of the Father’s Day high water mark for 2009 and about 10cts gal above my post on July 10.

-         Three individual markets remain above $3.00 gal - - Alaska comes in at $3.21 gal and Hawaiian gasoline leis in at $3.24 gal. California gas has advanced some 14cts gal from my last update to average $3.06 gal.

-         The cheapest fuel still shows up near the Appalachian Trail in South Carolina where unleaded averages just $2.429 gal, up about 8cts gal since early July.

-         The average price of diesel fuel is today $2.68 gal, up about 12cts gal since early July.

  Whether one talks about gasoline or diesel, the year-on-year comparisons remain striking. Gasoline prices are about $1.13 gal below where they stood on this day in 2008. Diesel prices are almost $1.80 gal underneath year ago levels. I think we may see prices jog a bit lower for both products in the immediate future, but I wouldn’t rule out a new 2009 high for gasoline in a brief pseudo-justified rally before Labor Day. It’s not likely, but still possible.

A Midsummer Prediction for Halloween

   Let me make two predictions that should come true by about Halloween 2009:

-         - Somewhere just before All Saint’s Day, we will no longer be able to say that current fuel prices are cheaper than they were a year ago. To be clear, I’m not predicting updrafts to where numbers stand currently. My hunch is that fuel costs will probably remain within 15-20cts gal of $2.50 gal (I’ll take the under on the bet) but the forward numbers will be measured against a cascade of fourth quarter decreases one year ago. Halloween 2008 saw an average gasoline price of $2.50 gal, and that eventually fell to $1.61 gal by year’s end.

-         The Cowboys will have a sub-500 record and the Yankees will be the American League representatives in the World Series.

   Actually, I’m kidding about the last prediction. I love the Yankees and despise the Cowboys, but I recognize that rendering predictions based on favoritism, or emotional or financial attachment qualifies as junk economics. I hope the faux sports predictions come true, but they aren’t based on empirical evidence or research and insight. And I don’t even have any money riding on sports teams.

   This mention hearkens back to the title of this post. I believe that some investment banks, most notably Goldman Sachs, are looking at the world through rose colored glasses, with the view further obstructed by dollar signs within the lens.

   And let’s face it - -- futures’ markets are much less windows-on-commercial-business as much as they are funhouse mirrors for financial money flows. Hence, the summer rally in crude and gasoline, and even in heating oil and diesel, has been driven by optimism—perhaps premature and almost certainly distorted —about economic recovery. It’s optimism combined with an appetite for risk, and not an appetite for more fuel.

      The cornerstone of Goldman predictions for a more robust economy relies heavily on the resumption in purchases of what we’ll call “stuff”, whether it’s for consumers or industry. Rather than prescribing a true catalyst, the bullish sentiment among financial players suggests that the replenishment of commercial and consumer inventories of “stuff” is cyclical. The de-stocking cycle has ended and re-stocking will create more commerce, they might say.  That additional commerce should lift demand for transportation fuels.

 So You Think You Can Dance?

   In much more elegant prose than I use in this paragraph, Goldman refers to the cycle as “trough and pop.”

      The investment house may indeed be ahead of the curve on this issue, but within our downstream expertise, we don’t see evidence of any forthcoming pop. In my particular view, the economy is embarking on a new hip/hop version of the ever-so-popular “pop & lock” maneuver. Let’s call it “trough & lock.”  (Trust me: if you ask your teenage kids about pop & lock, they’ll know what it is).

    Stories in Monday’s OPIS newsletter cover what I would call the chicken & egg & oil argument that will further drive price direction.  Will lower refinery output tighten supply and bolster product prices, lifting crude in the process? Or, conversely, will lower refinery runs put downward pressure on crude and dash the hopes of oil futures’ investors?  Will demand for heretofore undesirable products like heating oil and diesel and kerosene rise before U.S. and global inventories are sated?

    We surveyed the U.S. downstream markets and found:

-         Refinery downtime in the next 60 days may be much more extensive than most forecasts.

-         There is no sign of anything resembling a recovery in demand for diesel fuel. Gasoline demand, which is about flat to year ago levels, is a lagging indicator. Diesel demand is a leading indicator. The numbers don’t lead us to believe that year-over-year demand for commercial transportation fuel has yet hit a bottom.

District 9 & Other Thoughts

      I noticed that the science fiction movie District 9 received some rave reviews today. The story involves the harsh treatment of extraterrestrials who become refugees in South Africa, and incur the wrath of an angry public.

   I’ve heard that the aliens are called “prawns” in the movie because they look like the large crustaceans that are culinary favorites of seafood chefs. My first worry was that our rather hefty West Coast editor might attack the screen with a pitchfork-sized tine and a bucket of cocktail sauce if he should happen to wander in to the movie at the metroplex.

   This seems like a timely release of a thoughtful movie about preconceived notions, anger, and prejudice, however. This is my 55^th August, and I believe this to be the angriest dog day month in my lifetime by far.

  Consider the plight of ExxonMobil. This week they pleaded guilty to causing the deaths of 85 migratory birds, which died after exposure to natural gas well reserve pits and waste water facilities. The fine was about $600,000 or about $7,000 per bird. One could have flown first class to Paris, dined on pheasant under glass, and returned to one’s home via limousine for each dead fowl.

   There were larger issues involved, but it’s clear that the world’s largest company has retained status as a target, even though banks are gaining speed for whipping boy status. Of course, many banks deserve this attention - - -judged on a figurative basis, their kill  count far exceeds 700 birds, with kittens, puppies, and ducklings among the casualties.

   There is an incredible amount of misguided anger among the public. Pick up a DVD of To Kill a Mockingbird and watch the courtroom scenes. Get Ted Turner to colorize the footage and you’ll feel as though you are watching one of the political meetings in August 2009.

   We need to lighten up but more importantly, middle-up and depend on some objective voices.  It’s probably not advisable to get your information on global warming, cap & trade bills, and what makes sense for energy policy from idealogues.

   Right now the debate gets shaped by MoveOn.org on the left and Talk Radio on the right, and that’s not a good thing. Comments from both sides have the honesty of the explanation Joe Pesce renders in Goodfellas when he stops bloodied and rushed at his mother’s house.

   “I hit a deer, Ma.”