I just performed a google news search on “$5 gas” and came up with 106-million results within 0.18 seconds. Many of the stories quote “experts” who give the skinny or the scoop on why this will be the year that Americans need Lincoln’s picture on the legal tender necessary to purchase a gallon of unleaded fuel.

   Let me make myself perfectly clear. This is nonsense. You may indeed have to pay $5 gal if you buy your summer gasoline on a tropical island, Martha’s Vineyard, or one of the tonier suburbs of New York, San Francisco, or Los Angeles. But the chances of nationwide gasoline averages approaching $5 gal are about as good as having the Spice Girls perform a tribute to Demi Moore at the Oscars.

  The voices of hyperbole do get noticed, reminding me of an anonymous quote I heard several years ago: “The most dangerous man in the world is the articulate incompetent.”

    I would amend this slightly and suggest that “the most dangerous man in the world is the glib or articulate incompetent who is readily available for media interviews.”

  Some of the predictions remind me of the proclamations of 16^th century seer and apothecary Nostradamus, who purportedly predicted world wars, 9-11, and other more recent events. Any historian will tell you that most of the proclamations were deliberately vague, along the lines of “Two teams will battle on the playing field, and one will win,” ---a prophesy that clearly pointed to the Giants’ Super Bowl victory.

Consider for a moment the hastily produced chart below:

  Year          Valentine’s Day Price          July 4^th Price

 2000                           $1.36 gal                           $1.65 gal

 2001                           $1.49 gal                           $1.49 gal

 2002                           $1.21 gal                           $1.40 gal

 2003                           $1.64 gal                           $1.49 gal

 2004                           $1.64 gal                           $1.89 gal

 2005                           $1.89 gal                           $2.27 gal

 2006                           $2.29 gal                           $2.93 gal

 2007                           $2.23 gal                           $2.95 gal

 2008                           $2.98 gal                          $4.10 gal

 2009                           $1.97 gal                           $2.62 gal

 2010                           $2.62 gal                           $2.74 gal

 2011                           $3.13 gal                           $3.57 gal

 2012                           $3.51 gal                              ???

  A couple of things jump right off the table. The mere observation of thirteen years of national gasoline prices reminds us that we may indeed pay two or three times what we paid just a decade ago for our fuel this summer. The numbers show a bubbling and re-bubbling that is reminiscent of late 20^th century and early 21^st century housing values.

  Secondly, the 2008 year stands out. What we paid on the 4^th of July that year was $1.02 gal or some 34% above the Valentine’s Day level. The Giants also won the Super Bowl in that year, and perhaps that will be the talisman that trumps macroeconomics, consumer fatigue, demand destruction, and healthy global supply of gasoline. If Giant’s Super Bowl  victories are a harbinger and a similar spike is in store, the arithmetic adds up to an average gasoline price of $4.70 gal on July 4, 2012.

    I clearly don’t believe that will happen, and by the way, the chart does not show where we ended 2008. However, for those of you keeping score at home, unleaded regular gas sold for an average $1.62 gal on December 31, 2008.

  I’m sticking by the broad prediction that we will see average U.S. gasoline values of $3.75-$4.25 gal when we peak this spring. We’ll probably surpass $4 gal on the West Coast before March, but that’s not unusual. California has already switched to the more difficult-to-make summer blends of gasoline, and we’re in the middle of maintenance season there.

  The hot spots in the lower 48 will be California, New England, Pennsylvania, Delaware, and New Jersey. We’ve lost two refineries that contribute about 360,000 b/d to middle Atlantic supply, and a once huge refinery in the Caribbean will close forever this month. Throw in the closures of a half dozen or so European refineries and you have a recipe for a spike, albeit a brief one.

Some random observations and predictions:

-          Crude oil prices for the various coasts of the U.S. are much higher than you think they are. At press time, it costs about $120 bbl or more to bring foreign or domestic light sweet crude to refineries in Texas, Louisiana, New Jersey, Pennsylvania, Delaware, California, and Washington.

-          There is pure chaos in the price of crude oil trapped North American markets (by trapped, I mean that this crude can’t be easily piped to coastal markets). Earlier this week, we saw some Canadian heavy blends fetch prices in the $60’s, and North Dakota Bakken crude was briefly worth less than $75 bbl. The volatility in these markets make 2000 NASDAQ tech stocks look absolutely sedentary in comparison. But incredibly, any given moment might see one inland refiner have a crude cost that is $50-$60 bbl below a coastal counterpart.

-          We’ve never seen this much diversity in gasoline prices. You can buy gasoline for less than $3 gal today in Colorado, Wyoming, Montana, Idaho, Utah, and even in southern Ohio. Yet, retail gasoline prices surpassed $4 gal in greater Los Angeles today. The diversity is related to the wholesale price. We saw some Midwestern and Rocky Mountain wholesale prices as low as $2.30 gal this week, even as gasoline futures roared above $3 gal.

-          There is a large speculative element to this early rally. A fresh update from the Commodity Futures Trading Commission (CFTC) will arrive this afternoon. Last week’s update saw the greatest buying skew ever among the hedge funds, commodity pools, and index funds that often park money in gasoline futures and options. I calculate that about $11-billion more money was bet on a higher price outcome for gasoline, than on a lower price outcome.

-          Demand remains abysmal. Year-to-date, the first 40 or so days of 2012 have seen gasoline demand that is about 7% below last year, if you look at Energy Information Administration (EIA) reports. If you look at MasterCard data, you witness a year-on-year decline of about 5%.  These are huge numbers for demand destruction.

-          Within this calendar quarter, crude oil output in North Dakota will surpass crude oil production in Alaska. Think about that. It really is incredible.

-          Exports of U.S. fuel will become a political hot button soon. We are currently exporting about 1.2-million b/d of diesel fuel (mostly to South America) and just over 500,000 b/d of gasoline (mostly to South and Central America). What we’ll see this spring and summer will be a rise in both gasoline imports and exports. That seems strange, but shipping rates make it easier for East Coast ports to receive European or even Mideastern gasoline. It costs about 3-4cts gal more to ship gasoline from Texas to New York (via American flagged vessels) than it costs to ship products from Europe to New York.

-          Iran, and the various saber-rattling that emanates from its portion of the world, is always in the background, but until now, this geopolitical issue has simply inhibited sellers in the futures, options, and derivative markets. Large trading houses simply feared selling into a market which could explode higher on Persian Gulf hostilities. As world prices for light sweet crude advance above $120 bbl, the fear begins to shift to the buyers. They may perceive that this rally is getting long in the tooth, recognizing that global demand destruction takes place when crude prices are in a $120-$130 bbl range.

-          I’ll be in Las Vegas next week, speaking at the National Association of Truck Stop Operators (NATSO) convention at Caesars, and then attending the Western Petroleum Marketers Association (WPMA) meeting at the Mirage. I may briefly see a spike in my cholesterol content and a large dent in my wallet.