Watch for some weakness in oil prices between today and the 2010 Winter Olympics in Vancouver. It has nothing to do with recent history (oil markets plunged just before, during, and after the Beijing Summer Olympics but that is largely coincidence) and everything to do with seasonal behavior. I don’t expect that consumers will see a record setting downhill, or a death spiral, but it will be hard for current numbers to be sustained as skeleton-like demand takes a luge run.

   We’ve actually seen retail fuel prices ease slightly from their fifteen month highs in the last few days, but we’re dealing with tiny fractions. To date, 2010 gasoline prices peaked on January 14 at $2.7583 gal and they have given up a fraction of that value on each of the last four days to stand at $2.746 gal currently. Diesel has backed up some 0.75cts gal in the last three days. We’ll see larger pullbacks in the days and weeks ahead, I believe.

    With the occasional exception, one can count on two certainties in January and February. Demand for transportation fuels will be poor, and January movie releases will be about nine quality levels below the December movies released in time for Oscar consideration.

   The second part of that predictive couplet has already been fulfilled. Recent days have seen the debut of Tooth Fairy, starring Julie Andrews and Dwayne “The Rock” Johnson in a role that seems tailor made for his skills. One of the other notable releases of early January was *** Slap, brought to you by the genius who directed some of the best episodes of Xena: Warrior Princess. (Editors Note: The entire run of Xena took place against the backdrop of crude oil prices that briefly dipped below $10 bbl, and never managed to rally above $35 bbl.)

   Here’s hoping that my career does not mimic the path of the Oscar-winning Julie Andrews, who must have really needed a paycheck.

     In addition to bad movies, January often brings plenty of oddity to the electronic circus of circuitry known as futures’ trading, and January 2010 lived up to that tradition in spades. Most of the people who deal in the actual physical petroleum universe view current numbers as bubbly.  Many investment houses and those that have their gravy trains attached to oil price appreciation or commissions tend to think otherwise.

   Here’s one oddity as we enter into what are generally accepted to be the two coldest weeks of winter in the northern hemisphere: Motorists are actually spending less money on gasoline today - - about $1.008-billion – than they were on Christmas Day (about $1.070-billion).

   The price for gasoline for the long MLK weekend is still just under $2.75 gal so it represents an increase of about 17cts gal in three weeks. However, consumer travel has dipped in that same period. Motorists tend to do less driving when there’s ice, and snow, and holiday bills on kitchen counters, and empty merchant parking lots on weekdays. Underemployment levels of greater than 17% also have altered behavior.

    Demand for gasoline during Christmas week was 9.07-million barrels or just shy of 381-million gallons per day. Demand during the first half of January, as measured by the Energy Information Administration, has been stuck at 8.74-million barrels or about 367-million gallons per day.

Watch The West Coast

   The typical wholesale price for gasoline in the U.S. dropped by about 11cts gal this week. There were some exceptions, and they qualify for man-bites-dog special mention.

   Wholesale gasoline prices in California were above $2.22 gal on January 4. They begin this third business week of January below $1.97 gal. It’s not unusual to see California prices behave in manic fashion, but it is unusual to see the cleanest and most difficult-to-manufacture American gasoline sell for only a few dollars more than crude oil.

   It’s worth mentioning that California was the first mainland state to move above $3.00 gal at retail. It’s also no coincidence that unemployment is particularly high on the west coast, and the region is still shedding jobs. The $3.00 gal price doesn’t represent a breach of some economic measurement of disposable income, but that hardly matters. People cut down on discretionary driving when whole numbers are exceeded.

There Will Be Blood

   Several U.S. oil companies delivered “interim updates” last week, designed to give investors and shareholders a head’s up on earnings’ prospects. The updates were generally unpleasant.

   Integrated oil companies won’t need a federal bailout since the exploration & production segment of their businesses has thrived thanks to lofty crude prices between $70-$83 bbl in recent months. But the performance in refining and marketing is as poor as it has been in years, even though economists and more predictably, money managers, tell us that the recession has come and gone. Independent refiners, most of whom do not have their own proprietary crude oil, will give some color on their fourth quarter 2009 performance between January 27 and February 2.  The financial colors of autumn, released in midwinter, will certainly be black and blue, and perhaps even red all over.

   The updates released by Chevron and Marathon last week contained a scary subtext on the downstream segment. Without question, Chevron has some of the best refining locations, and traditionally profitable direct supply assets in the U.S.  However, the numbers included in their press release in advance of January 29 earnings led investment analysts to conclude that the major had lost $500,000 or more every day in the fourth quarter. Marathon told investors that it would probably record a downstream gross profit, but said that said profit would be approximately one cent per gallon, down almost 92% from the fourth quarter 2008 figure of 12.48cts gal.

   Ultimately, earnings season for many other refiners in early 2010 could be as ugly as it has been in a decade. Wall Street analysts’ models have underestimated the pain. That’s probably because they don’t realize that in order to move light products downstream, refiners have been selling fuel at less than what spot economics might suggest. And main street analysts who simply want to cheer an economic recovery, wave their pom-poms as though high prices on the street mean that everyone in the supply chain must be printing money.

  It is notable that both Chevron and Marathon saw disappointing results on volume. Chevron sold less product throughout its U.S. system, and Marathon sold less fuel at its company-operated retail stations (it did, however, refine more product).

  The most chilling revelations may not even come via fourth quarter earnings data. More frightful, perhaps, will be questions about the start for 2010. At the refinery level, it makes much of 2009 look like a picnic.

  Consider the plight of California refineries. Descriptions of lean times out west usually equate to gasoline or diesel sales at say $10 bbl over the price of crude. As the second half of January began, CARBOB and CARB diesel sold for just $2-$5 bbl over benchmark blends.

   West Coast refiners may tough it out, convinced that spring will bring better returns. But we suspect that the next month will see some refinery closings from coast to coast.