Tuesday, March 15, 2005

Gas & Oil at a Glance: 031505

Both gasoline and oil are near record levels. The average price of gas is approaching its all time high, ending Monday at $2.056 per gallon. According to numbers available from the Energy Information Administration, gas ratcheted up another 5.7 cents compared to last week. The all time high was $2.064, recorded by the EIA on May 24, 2004.

Even so, the relationship of the cost of gasoline to the price of oil, expressed numerically as the 'Gas to Oil Price Ratio' – 'GOP' for short - remained virtually the same at a low at 1.57, as the benchmark West Texas Intermediate crude increased $1.06 a barrel to $54.95. The 'Spread', the difference between what is paid for a gallon of gas minus the cost for the same quantity of oil, rose to 74.77 cents, a little more than 3 cents higher than last week.

Considering the trends of the past year, the present levels for both the GOP and the Spread remain well below their averages. As I read it, these are ominous indications that, unless crude oil backs off substantially, even higher prices over the near term are just about inevitable.

But, extending the time horizon, with talk of $3.00 per gallon gas and $90 per barrel oil bubbling up, are we in for a new round of permanent escalations at the pump? Or, as has happened on occasions in the past, will oil prices collapse, taking us back to buck a gallon gasoline? My focus on petroleum as I prepare this report has led to the review of some diverse and provocative viewpoints and has helped me to clarify my perception of where things are likely to go. Perhaps this week, I'll find the time to assemble these thoughts in a separate post.

Last week, I wondered out loud what was happening with the difference in estimates of average national gasoline prices between various organizations that deliver this information to us. Recently, I've found them to be as large as 8 cents on any given day, with the American Automobile Association tending to be lower than GasPriceWatch, the Energy Information Administration and the Lundberg Survey. This past week, GasPriceWatch.com and the AAA were messaged by me in search of some insight. While I have not received a response from GasPriceWatch, I can share AAA's answer with you.

"The AAA Fuel Gauge Web Site is the most current and most accurate source of gasoline prices available. . . The AAA Fuel Gauge Web Site is derived from credit card transactions at over 60,000 stations around the country. Prices shown are combined averages of the last card swipe of the previous day with the exception of Saturday and Sunday. . . . AAA's understanding is that the US Department of Energy retail gas price survey is based on prices at fewer than 1,000 stations nationwide, and sites such as Gas Price Watch usually rely on Internet users posting prices they see on the street. AAAbelieves the survey method used by its data supplier, Oil Price Information Service, is the most accurate and statistically reliable available by far; especially when tracking daily prices at the state and local level which requires a constant stream of price data from avery large number of stations.”

At first glance, the AAA data collection method appears impeccable. Yet, it's unsettling that the other three sources have been closer together on prices, steadily showing them to be higher than the AAA, at least over these last few weeks when I've been paying very close attention. Until I learn more, for these time sensitive communiques, I plan to rely upon the Energy Information Administration figure for the prior day.

For more background and an explanation about the methods underlying this weekly report, please access this post.


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