I’ll explain the title for this oil metaphor a bit later. And no, the title isn’t an alternate name for the executives who brought us AIG and the bailout of same.

   We’re on the cusp of Thanksgiving week 2009, and as I am wont to do, I thought it might be an appropriate time to anticipate the myriad questions that come with holiday travel. These aren’t necessarily frequently asked questions - -some are questions that should be asked.

Q. What should motorists expect to pay for gasoline this Thanksgiving and how does it compare with last year?

A. The average price for unleaded gasoline should be around $2.65 gal this weekend, and based on demand expectations, that would calculate to about $1.018-billion per day in consumer expenses. The average price on Thanksgiving weekend 2008 was $1.846 gal, representing a daily consumer outlay of $698-million.

  (For the purposes of the question, I used a figure of 9-million barrels per day or 378-million gallons per day for 2008 end-November demand, and estimate that this year will see 9.15-million barrels per day or 384-million gallons per day of demand)

Q. How do current crude oil prices compare with last year?

A.  Crude oil futures are right around $77.50 bbl and have been mired in a $75-$82 bbl trading range since late October. Ahead of Thanksgiving in 2008, crude futures closed at $54.45 bbl. So at this point, global crude is about $23 bbl more expensive than a year ago.

Q. What might we expect during the rest of the year for crude?

A. I’m glad you asked that question. I believe that crude oil prices are top-heavy and a bit overinflated, but there’s an interesting rendezvous in December.

   Mark down the weekend of December 19, 2009 on your calendar. Unless there is an early epiphany in global markets, we’ll see something as unusual as a total eclipse of the sun.

   Crude oil prices settled on December 19, 2008 at $33.87 bbl. It’s very likely that we’ll see some December business days where the current price of crude oil is more than twice the value of the previous year. I believe that the last time this occurred was in early 2000. If you recall, the 1999 year saw crude oil prices dip toward $10 bbl so a doubling of price was nowhere near as daunting a task as it is these days.

Q. OPEC meets on December 22, 2009. What do you expect will be the result?

A. Cartel cheating on quotas continues to be rampant, although OPEC ministers like to refer to cheating as “leaking.”  I wish sometimes that I could have leaked a bit more on my SAT scores.

   All of the data suggest that demand for OPEC oil will fall short of cartel production plus the “leaks” by something greater than 500,000 b/d. One also wonders whether the Saudis are comfortable with an $80 bbl plus price and the impact such a steep number might have on the tenuous global economic recovery. It could also be argued that an $80 bbl or higher crude price would fortify Iran, and I doubt whether that is on the Kingdom’s wish list.

   OPEC will meet, they will issue a communiqué, and they will almost certainly keep quotas intact and pay lip service to greater quota compliance. The effort to rein in “leaking” will have the teeth of Moms Mabley.

Q. This autumn has seen a number of U.S. refiners shut down, or talk about possible closings. Are refiners really in trouble, or is this just posturing ahead of proposed Cap & Trade legislation?

A. Refiners that don’t have their own equity crude are facing a hostile environment. Peak demand for some fuels produced from crude is indeed in the rear view window, and the ongoing fourth quarter has red ink splayed all over refinery balance sheets. In the last month, we’ve seen temporary shutdowns of refineries in N.J., and in New Mexico, and last weekend, Valero announced that it would permanently close down its 182,000 barrels per day refinery in Delaware City, Delaware.

   There’s no question that refiners cried wolf years ago before they incurred costs related to fuel specification changes tied to the Clean Air Act. Refiners, traders, and consultants all profited when margins swelled during periods where refineries were down to install necessary equipment. If I were a refiner in 2000, I would have lobbied Congress extensively to add Aqua Velva or Chanel Number 5 to fuel mixtures, knowing that prices and margins would soar as specs changed.

  But this time, it’s different. We have about 3.0-million barrels per day more U.S. refining capacity than we need in much of 2010, based on the fragile U.S. economic recovery and its impact on consumer and commercial purchases.

Q. If refineries are using so much less crude, why are crude oil futures prices so high?

A. Crude oil values above $75 bbl can’t be explained by traditional fundamentals of supply and demand. U.S. crude oil inventories will soon trend lower, and that trend could remove some surplus before 2010 arrives. But crude oil stocks are being reduced voluntarily - - if demand for finished products remains flat, it doesn’t make sense for expensive crude oil inventories to be maintained, particularly when inventory gets harsh treatment in terms of various taxes.

   Some investment banks might suggest that global crude oil supplies are tightening, but I would remind everyone that only two countries - -the United States and Japan -- really have reliable data on inventories and production, and even U.S. data is very flawed. The statistics that come from China, India, and emerging economies are flawed in the same way that the Detroit Lions are flawed.

   The truth is that oil prices are where they are because the money pipeline has incredible flow rates that are brisk by any standard. As long as crude oil futures are viewed as a proxy on the economy, or as a worthy asset hedge against inflation and a weak dollar, the money pipeline is like the Trans-Alaska Pipeline System. 

  Unfortunately, there are much smaller money pipelines for gasoline (RBOB futures) or the middle of the petroleum barrel (heating oil futures’ contracts). U.S. refiners are victims of the uneven money flow, particularly if they don’t have their own crude oil reserves.

Q. Are there any hot spots for gasoline prices this autumn?

A. No, the price of gasoline has taken a homogenous turn. Whether you live in Chicago, or New York, or San Francisco, or El Paso, the wholesale price of unleaded regular is between $1.91 gal and $2.00 gal.  The variation in the retail price is a function of the state and local taxes. Generally, retail gasoline sells about 60-70cts gal above the wholesale price so this represents stasis.

Q. You’ve talked about gasoline and crude. What about heating oil or diesel?

A. Demand for diesel fuel remains about 10% or more below pre-recession rates. Heating oil is weather-sensitive, and so far, the heating season is off to a mild start.

  Prices for diesel fuel are very close to late November 2008 levels, even though 2009 crude oil prices are much higher. Margins for refiners are one tenth of what they were a year ago. So, to put it bluntly, where diesel goes from here is totally dependent on crude. A $1.00 barrel increase in crude merits gains of about 2.5cts gal at truck stops and vice versa.

  Retail heating oil prices are in the $2.40-$2.60 gal neighborhood and I doubt whether they’ll spike higher through the rest of 2009. January is always a crapshoot – if there is a three or four week cluster of northeastern weather with average daily temperatures around 20 degrees F. or less, prices could move up quickly. But it might take an ice age from December through February to really create a 2010 spike. Under no circumstances should we expect any sustained spike above $3 gal.

Q. What is your favorite heating oil company?

A. A Canadian firm that is gobbling up multistate heating oil retailers in the northeast has caught my fancy, not because of its M&A spree, but because of its name. It’s known as Superior Plus.  I think that would make an excellent rap name (I’m not just superior dog, I’m ‘superior plus!’)

Q. This week’s 60 Minutes had a riveting interview with a Newsweek reporter who said that his captors, the Iranian Revolutionary Guard, were obsessed with New Jersey. The reporter Maziar Bahari, noted that his guard “hated me and was jealous of me at the same time because I had been to New Jersey.” Later the guard mentioned that “he thought of New Jersey as a kind of like paradise.”

   As a long time resident of New Jersey, what do you make of the Revolutionary guard’s comments?

A. My fellow residents of the Garden State have recognized for a long time that we truly live in a paradise. Little known fact:  Director Randal Kleiser initially hoped to film The Blue Lagoon near Raritan Bay, but opted for the South Pacific when actress Brooke Shields developed an allergy to the odor of cat urine that provides a pervasive and special olfactory experience for N.J. dockworkers.

   Ok, enough of the questions. I’d like to close this holiday post with a link that charts U.S. oil production versus rock music.  Visit the chart below, and then read on.

http://www.boingboing.net/2009/11/11/graph-compares-rock.html

  In a sense, this chart makes about as much sense as many of the contemporary charts that map oil prices versus the U.S. Dollar or the S&P 500.  Until 2009, there was little correlation between crude prices and the dollar, or crude prices and equities.

   Around here, the rock music chart provoked some interesting polemics. What was the absolute nadir of the rock era if one broadly defined it as 1949 through 2007? My own personal choice was Insane Clown Posse, until I looked at some of the solo artists of the 1990’s.

  That view provoked a moral question. If you had to remove a person from the planet for the good of the human race, and the choices were Michael Bolton or Kenny G, which one would you choose?

  I would choose neither. Instead, I would go back in time, and isolate the person who introduced Celine Dion’s parents to one another. Then, I’d go after Slobodan Milosevic, but first things first.