Crude oil is getting all the fanfare, but the amount of money that Americans mete out each day for gasoline has quietly surpassed what was paid a year ago. Let me explain.

   The national average retail price for unleaded gasoline today stands at $2.671 gal. That is 2.8cts gal below the average street price one year ago, but trust me, the average number will be above 2008 levels by week’s end.

  Gasoline consumption is averaging around 9.150 million barrels per day (or 384.3 million gallons per day) recently. A year ago, consumption was in the neighborhood of 8.845 million barrels per day (371.5 million gallons).

  So, the back-of-the-envelope calculation yields a per diem cost of $1.026-billion on Monday morning, October 26, 2009 versus a figure of $1.003-billion one year ago. We’re paying about $23-million more each day for our fuel than last year, but this gap will undoubtedly widen to about $250-million per day by year’s end. 

   Most of the year-on-year cost increase will come not because of additional increases in 2009 prices. Rather, it will be almost entirely attributable to the plunge in prices last Fall that pushed retail gasoline values below $1.62 gal by New Year’s Eve 2008.

   I’ll leave it up to the economists to determine whether $250-million/day in additional consumer spending on fuel will crimp the economic recovery.

Blame It On The Rain

   In dealing with $80 bbl crude and reaching for a metaphor, I could cite plenty of 1980’s music in order to make the point that all price spikes are fleeting, and mostly forgettable, even to the talking heads that need something to contribute to the 24 hour news cycle.

   This rally strikes me as Milli Vanilli flavor. In terms of classic fundamentals of supply and demand, it is quite fraudulent. But there are countless algorithmic traders, financial houses, and speculators who are lip synching a bullish tune which cannot possibly be sustained long term. The producers of this song tend to be the investment houses that have a stake in the sale, and a stake in reflation, or inflation, which they prefer to deflation at all costs.

   At some point, markets will pay less attention to the cheerleading and more attention to the poor fundamentals that could persist well into, if not through 2010. Milli Vanilli was ultimately exposed. They got away with lip-synching for about two years before they confessed to the crime and gave up their Grammy. I suspect it will only take weeks or at most a couple of months before money managers begin to peel back much of the $15-$25 bbl “hope premium” currently built into crude prices.

  But before that epiphany arrives, we’re going higher. There’s a better than 50-50 chance that we’ll see U.S. gasoline prices surpass the 2009 high of $2.695 by the weekend. But I’m betting that we’ll be lower two months from now, and lower one year from now as well.

Thoughts Stolen From Top Oil Minds

    I just returned from the 11^th Annual OPIS Oil Supply Summit in Lake Las Vegas, Nevada as well as the National Association of Convenience Stores (NACS) meeting at the convention center there. Some thoughts gleaned (stolen) from some of the bright minds at those venues.

• A $100 bbl price for WTI crude is “the new $147 bbl” as my friend and noted technical analyst Walter Zimmerman notes. In other words, the market may indeed go higher based on its own internal momentum as well as short covering, but the ultimate extreme is about $20 bbl away.

• We need to throw out the notion that oil futures & options markets are simply one big casino.  After all, casinos are highly regulated and have many rules, observe every single wager, and record all the action via high tech surveillance.  If casino bosses were running the oil futures, options, & derivatives markets, I have no doubt that the top traders at some financial houses might some day wake up with a horse head in their bed.

• Refineries are being treated as the soldiers of Satan if you look closely at various climate legislation initiatives. (Satanic references should be reserved for money center banks, AIG, and the Phillies). For the record, I do believe that developed and undeveloped countries need to do something about carbon emissions. But refiners, many of whom are dancing on a knife’s edge financially, are twice cursed. They get slammed very hard by initial treatment on emissions (at the refinery) and then again will incur huge costs when the product is sold downstream. It’s a bit like Taco Bell getting taxed on burrito production, and then having to buy toilet paper for the end-users (no pun intended).

• A decision by EPA on the move to higher ethanol blends looms by December 1, 2009 and there is still no clue as to how EPA and other regulatory agencies will deal with requirements for much higher ethanol content in fuels, and particularly for the billions of gallons of cellulosic ethanol. Government regulators don’t seem to acknowledge the problem in terms of the source of the bio component, or the lack of infrastructure. The new fuels are “mandated,” they say.  Note to self: ask the proper government agency to “mandate” that my wife look like Jessica Alba, cook like Rachael Ray, and have the income stream of Oprah Winfrey.

• The hottest trend in gasoline these days is loyalty marketing. Several retailers have alliances with supermarkets and fast food chains where purchases of groceries and say, donuts, translate into rollback pricing at the pump. The response has been incredible - - motorists at some sites fill up and watch in great glee as the street price “rolls back” and subtracts the loyalty rewards from the price. Side effects can include facial flushing, muscle pain, and backache, and some motorists have to call their doctor after four hours.

• While at the NACS show in Vegas, I sampled all of the wonderful items that are, or will be offered at c-stores in the next few years. Various celebrities on the floor of the show included Mike Tyson, Pete Rose, and incredible as it may seem, the Sasquatch. The Sasquatch was peddling Jack Link’s Beef Jerky but the hottest new item in the jerky world is a new caffeinated jerky that may keep us awake when we need to pick our teeth while driving late at night.

Final Thought: I have constantly stressed in various posts that the major determinant of oil prices is crowd behavior. If anyone doubts whether otherwise civilized and intelligent people can behave irrationally when they convene in large groups, I invite you to tune in to the Yankees/Phillies World Series this week.

Yankees in six.