Tuesday, March 29, 2005

Gas & Oil at a Glance: 032905

The toll for gasoline set another record in the U.S. this week, up 4.4 cents, to reach an average of $2.153 for a gallon of Regular Self Serve Unleaded. In contrast, the grade that I use for oil in these reports - West Texas Intermediate (WTI) Crude that is traded in Cushing, Oklahoma - closed yesterday at $54.05 for a 42 gallon barrel, down $2.57 from last week. The silver lining accompanying the dark cloud may be that the push for premiums to continue upward is diminishing.

With oil having backed off from its flirtation with $58.00, the piece of the pie for those involved in the refining and marketing of petroleum has grown. It is moving closer to where it should be, if one considers where it has been in the past. This week, the 'Spread', the tag for a gallon of petrol at retail, minus the cost for the same quantity of oil, shot up by more than 10.5 cents to 86.61. That's slightly more than the average for all of 2004.

Likewise, the 'GOP Ratio' – that's my encapsulated expression for 'Gas to Oil Price Ratio' – rose to 1.67. On a weekly basis, there have been 10 times when oil has sold at above the $50.00 mark. The 1.67 GOP Ratio is the second highest within this category. As I read the data, generally, the higher the GOP, the less likely we are to see its ongoing elevation.

One more indication of lower price pressure came in the form of a fast and large drop off last week in the cost of the West Texas Intermediate crude. Coincident with the Texas City, Texas refinery explosion on March 24, this grade of oil that's sold in the neighboring state to the north slid precipitously down to the $48.00 range, before recovering almost as quickly to its present price just above $54.00.

From what I noticed, that decline was not mirrored in the trading of oil on the New York Mercantile Exchange, frequently referred to as the NYMEX. Since sales on the NYMEX are the ones most widely reported in the media, it's my impression that most people weren't aware of the exaggerated volatility that was taking place at this other major center of oil commerce in Oklahoma.

Keep in mind, I'm not suggesting that I foresee conspicuously contracting fuel prices on the immediate horizon. If anything, were I laying money on the line, I would bet that we'll see gasoline go a bit higher. Up another dime? As I indicated this past Tuesday, gas nationally at $2.25 is not at all out of the question. But another quarter, as we've endured over the past month? I now doubt it. Having to brace for another round of really large leaps in the next month or two appears to be much lessof a probability, to my way of thinking, at this point in time.

Incidentally, I decided to use the Cushing, Oklahoma WTI oil as my benchmark, because weekly numbers for it have been made available by an 'official' source, the Energy Information Administration, tracking a period that spans nearly 20 years.

For further background about this report, including a description of the methods that I use for it, please refer to this post. See ya next week.


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