Tuesday, May 31, 2005

Gas & Oil at a Glance: 05/31/05

As the amount required to purchase gasoline declined this week, oil headed in the opposite direction. The average cost of Regular Self-Serve Unleaded closed at $2.09.6 per gallon across the United States, down by 2.9 cents from last Monday. We've now seen prices at the pump diminish by 18.4 cents over some 40 days, when the charge for petrol was as high as it has ever been in nominal terms, when it was tagged at $2.28.

(For this report, I am substituting current numbers from the American Automobile Association for gas and the Friday, May 27 amount for oil, due to the Memorial Day shortened work week. Normally, Monday's figures are quoted from the Energy Information Administration for gasoline and from the 'Energy' page of the Bloomberg.Com web site for oil.)

Having sunk below $50.00 a barrel for the two previous weeks, crude oil went on the rise again, finishing last Friday at $51.85 for a 42 gallon barrel of the widely watched benchmark grade known as West Texas Intermediate. The commodity's elevation was substantial, amounting to $3.19 over the prior week.

The 'Gas to Oil Price Ratio', one of the unique statistics of my imagination, intended to give a better sense of where gasoline prices stand with respect to oil's present going rate, is now at 1.70, as low as it has been in nearly two months. In simplest terms, this means that the cost of crude is making up a larger proportion of the price that is paid for gas. Most of the time, the lower the GOP Ratio gets, the better the possibility that gasoline will become more expensive in the near term.

A second measure of mine, the 'Spread', is the going rate for one gallon of gasoline at retail, after subtracting the cost for the same amount of oil. This gives a clear picture of how much is being kept by those who refine and market motor fuels, and it can vary substantially, as it did this past week. The Spread is currently at 86.15 cents, less by a considerable 10.5 cents from May 23. The last time the Spread dwindled by a greater amount was October 1, 2001, when it descended by 10.85 cents.

In the context of recent times, with both the GOP Ratio and the Spread being below the levels that have existed this Spring, it suggests to me that we may be near the end of the reductions in fuel prices. In saying this, I'm going against my one 'adopted' indicator, that being the daily prices reported by GasPriceWatch.Com (GPW).

As I've kept current with various guiding stars in compiling these reports for three months now, I have found that GPW prices tend to be either higher or lower than the American Auto Association's Fuel Gauge Report or of those reported by my main source of data, the Energy Information Administration. Even so, GasPriceWatch is inclined to lead these other two entities in revealing an upward or downward trend. As this piece is being written, GasPriceWatch is showing the fuel to be all the way down to $2.02 per gallon.

Despite the contrary sign from GPW, I am going to follow the expectation I've been reiterating for the past month: That gasoline will be going back up very soon. What's behind the recent spike in oil is the revelation that inventories, which had been seen as abundant, are not quite as plentiful as had been thought. Not only that, as reported by the Wall Street Journal in an article carried in the Detroit News, with the demand for products made from oil on the increase, there is a recurring concern about the capacity of refiners to quench that thirst.

If this scenario plays out, there may be some small comfort in the sense that I am not envisioning a huge move upward in the levy for gasoline. Perception often dominates reality, and there are many who believe that supplies are adequate to meet consumer desires. A common expectation is for the fees for fuel to be high but stable this summer, with prices not modulating either way more than a dime. Whether the fluctuation will be as minimal as 10 cents I question, but you can count me among those who foresee gasoline heading modestly higher.

In the coming week, if you see oil falling well into the $40's, you can rest assured that my very near term prognostication is off target.

There are a couple of separate items that I would like to publish on JonnymoOps soon, but I'm preparing for an upcoming relocation, which is limiting my available time. If you have the capability, please subscribe to the 'Feedburner' graphic or the 'Atom Feed' link for JonnymoOps, shown in the right hand column of this page. Then, you'll know immediately when a new post comes on line.

For further background about this report, including a description of the methods that I use for preparing it, please refer to this post. If all goes well, we'll see ya next week.

Tuesday, May 24, 2005

Gas & Oil at a Glance: 05/24/05

While gasoline dipped for the sixth straight week, the consensus about where its price is going to go doodled. Yesterday, according to the Energy Information Administration (EIA) the average cost of Regular Self-Serve Unleaded stood at $2.12.5 per gallon across the United States, less by 3.8 cents in relation to the week before. This is down 15 and one half cents from the record high that was set onApril 11 of this year, when it closed at $2.28.

On the other hand, crude oil was even. On May 16, it stood at $48.61 – my benchmark is the West Texas Intermediate grade that is traded in Cushing, Oklahoma - budging a meaningless nickel to finish at $48.66. This is the second week running that oil has sold for under $50.00, after enduring nearly one fourth of a year above that mark.

My two specialty statistics, the 'Gas to Oil Price Ratio' – the GOP Ratio for short – and the 'Spread' were down, but not by much. As the table at the end of this article reveals, the GOP, which expresses the portion that the current cost of crude figures into the
present price of gasoline, divides out at 1.83. That is still large
when one looks at those times when oil sells for $45 per barrel or
more.

The Spread, which is the amount that a gallon of gas goes for after factoring out the cost for a gallon of oil, stood at 96.64 cents as of yesterday. On a week to week basis, that's a loss of almost four cents. But, as with the GOP Ratio, the Spread is well above where it typically stands.

Also, as I've been doing for several weeks now, I'll cite an indicator that I accidentally came across, the variation between the mean gasoline prices reported by GasPriceWatch.Com (GPW) and the American Auto Association's Fuel Gauge Report. It has significance to me, because the two figures differ most of the time, with GPW, be it high or low, on the extreme, showing a tendency to predict the direction in which the AAA's numbers go. Early Tuesday morning, as this article is being composed, the GPW is showing a national mean of $2.06, while the AAA is at $2.12.1, as is virtually always the case, emulates the Energy InformationAdministration's figure.

With the GOP Ratio accompanying the Spread on the upside, along with the the GPW standard again positioned below its American Auto Association counterpart, these are signs to me that gasoline prices for the very near term should trend lower. But how long that movement will
continue is another question. Three weeks ago, I wrote that I expected the toll for petrol to be diminishing during the month of May. So far, so good. But following the end of the month, I forecast a return to rising prices.

Meantime, I have clung to that prediction and will stay with it. Just recognize that my expectation is seemingly being embraced by a diminishing number of the experts. Yesterday, for the first time that I am aware, I understood Trilby Lundberg of the legendary Lundberg Survey to change course, saying that she believes we'll see gasoline's ongoing descent. This eventuality is envisioned even with the advent of the June, July and August quarter, when warmer weather normally spurs a demand increase,with people out and about, driving additional miles.

Plus, there are recent reports out alluding to oil's value evaporating, such as a Kuwaiti oil minister conveying contentment even if crude cascades to the $40 to $45 per barrel range. Couple that with another take, that supplies will remain abundant as a slowing world economy dampens demand, and you have some good reasons to expect relief. To top off this line of thinking, looking out beyond this year, it should be mentioned that the European Bank for Reconstruction and Development is expecting oil to trade between $30 and $40 in 2006 and 2007.

On the opposite side of the tank, a lesser but nonetheless large crowd remains that supports my perspective, like the investment firm of Goldman Sachs. This firm is calling for crude's charge to even out at $53.50 for the rest of the year, which implies that gasoline will again become more expensive. Or, consider the report that the the Organization of Petroleum Exporting Countries' chief is hinting that we may see the existing all out production curtailed by mid June.

When it's all said and done, what keeps me thinking this way: We are well within are in an era when people worldwide want to use this form of energy to a greater extent, while the quantity of the commodity available for consumption is not growing commensurately. To me, be it later if not sooner, that signifies price pressure in an upward direction.

Whichever side you may choose to take about the direction of gasoline, you'll be in good company. And I won't blame you for hoping I'm wrong.

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





Tuesday, May 17, 2005

Gas & Oil at a Glance: 05/17/05

The story in fossil fuels for the past seven days is less the modest adjustment in the national average cost of gasoline and more the conspicuous drop in oil. In the United States, Regular Self-Serve Unleaded was going for $2.16.3 per gallon as of yesterday, according to the EIA, the acronym for the Energy Information Administration. That's down a paltry 2.3 cents compared to the prior week.

But, after 12 straight weeks of buyers paying above $50 for a 42 gallon barrel, crude oil, as measured by the West Texas Intermediate grade that is traded in Cushing Oklahoma, finished at $48.61, descending a substantial $3.42 from the previous week. This downturn is the largest since oil sold for $41.26, on December 27 of last year, $4.31 less than the prior seven day period.

The two figures that I calculate ended on the up side. Since the current cost of oil makes up a lower proportion of the total cost of gasoline, my Gas to Oil Price Ratio – the GOP Ratio for short –
figures out to be 1.87. For those times when oil is priced in the mid $40's or above, the GOP Ratio is steep. In fact, it is the highest that it has ever been with crude commanding at least $45 a barrel.

In concert with the GOP Ratio, the 'Spread' moved right along an upward path. Expressing the difference between a gallon of gas at retail and that for the same amount of oil, the Spread was greater by a bit over six cents, compared to May 10. Once again, it edged over the $1.00 hurdle, where it has been lodged for three of the past five weeks. To give you a feeling for how abnormal a spread above $1.00 is, going back over weekly data covering more than 14 years, there are only 18 other instances of this.

Along with one more indicator, all of the above bodes for lower prices at the pump. The other signal that I've started paying more attention to over the last month is the contrast between the two sources that report gasoline prices on a daily basis, GasPriceWatch.Com and the older and often referenced American Auto Association's Fuel Gauge Report. On early Tuesday morning, as this article is being written, the GPW is showing a national mean of $2.10, while AAA shows it to be $2.16.

It is a rare event when there is not a variation of some magnitude between the two, but this discrepancy of 6 cents is larger than usual. So far, GasPriceWatch has been ahead of the curve, revealing movements up or down before the AAA or the Energy Information Administration do. As time goes on, these two organizations eventually validate the price shifts that GPW showed earlier, for the most part.

As to how long this attrition at the pump will last, I'm sticking with the expectation that I professed a couple weeks ago. What we're putting out for fuel should continue to diminish through the month of May. Then, we should see gasoline prices turning around and heading the other way, with the June kick in of the 'Summer Driving Season'. Also, consider the EIA's most recent take on petroleum. Their people note that the desire for black gold remains strong across the globe, with those in Asia presently shelling out more for the stuff than those of us in the West. Even though availabilities of this resource in the United States are ample at this time, with growing demand intact and with conditions balancing out as they inevitably do, it would appear that we'll be drawing down our domestic supplies fairly soon.

Note that mine is not necessarily the prevailing outlook. The division of opinions about what's going to happen seems to be increasing. There is a credible crowd with the view that oil supplies will increase and that gasoline prices, already having peaked, are poised to fall further.

But right now, I'm on the other side of the fence, and the question in my mind is less whether gasoline will begin its re-escalation in the next few weeks, but to what extent it will. At least I'm not as inclined to expect that prices will expand towards $2.50 as I was a couple of months ago. In short, my advice is to relish this reprieve while it lasts, and hope that I'm on the right track about the reversal not being too extreme when it does come to pass.

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

Tuesday, May 10, 2005

Gas & Oil at a Glance: 05/10/05

After holding steady for three straight weeks, gasoline prices dipped by five cents on average across the U.S., selling at $2.18.5 for one gallon of Regular Self-Serve Unleaded. The number that I'm referencing was released late yesterday afternoon by the Energy Information Administration. This is the largest week to week decrease since petrol slid by 6.4 cents to $1.84.7 on December 13, of last year. Since gasoline peaked at the highest nominal amount ever, $2.28 on April 11 of this year, it has now lost nearly a dime in value.

Crude oil, on the other hand, hung around the low 50's, where it has
loitered for five weeks. Yesterday, the grade known as West Texas Intermediate closed at $52.03 per barrel, an escalation of $1.09, compared to seven days prior. This is the twelfth straight week that crude has commanded a premium in excess of $50.00.

My own two measures decreased notably from last week, but remain on the high side. The Gas to Oil Price Ratio (GOP Ratio) is now 1.76, down from 1.84, which ranks as the fifth largest during the 15 weeks when oil has stayed beyond the $50 threshold. The 'Spread', the price for one gallon of gasoline at retail with the cost for a gallon of oil subtracted, fell below $1.00 for the second time in three weeks, ending up at 94.62 cents. Last week, it stood at 102.21 cents. Even though it is down about 7.5 cents, the Spread is still beyond its mean. In the previous ten months, it has exceeded this week's amount on just four occasions, all of those being within the past 30 days.

With both the GOP Ratio and the Spread above their respective norms, my general inclination is to suspect a 'regression towards the mean' in the near future. In other words, all other things being equal, based upon this information, I would expect prices at the pump to trend lower. In addition, the wisdom that I'm coming across continues to suggest that that oil availabilities are decent.

Another new indicator that I've been keeping an eye on, GasPriceWatch.com, would also suggest a diminution in the cost of gasoline. When I look at GPW's daily prices, there is usually a difference between the more recognized American Automobile Association's national averages for gasoline, which, since I've been observing, has ballooned to as much as eight cents at times.

What's canny is that GasPriceWatch has tended to predict the eventual direction of the other gas price estimators. As I compose this post very early on Tuesday morning, GPW is showing the gas to be going for $2.13 across the nation, whereas the AAA is coming in at, $2.18.5, the same average reported by the Energy Information Administration. Consequently, as I projected last week, it continues to appear to me as if we'll be paying a tad less for our fuel in the days ahead.

But, as I also said then, I don't expect gas to continue getting cheaper when June comes upon us. As was pointed out in this article published by the Gulf Times in Qatar, even though there is a considerable amount of crude stored in the United States, the perception – and very likely the reality - of a tight supply situation prevails. Plus we are nearing the phase when demand should be increasing, with those hazy, crazy driving days of summer revving up consumption.

All in all, I'm saying that you should enjoy the that fact that your transportation budget has slacked off a bit, because I don't believe it's going to endure for long.

As a small bonus this week, if you have ever wondered how gasoline plots on a chart within the context of concurrent oil prices, please take a look at the second image below. It tracks over 14 years of weekly data, going back to 1990. You have my apologies for this graphic not displaying with more crispness and clarity, but I hope it still gives you an appreciation for the intense price relationship between these two commodities.

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





Tuesday, May 03, 2005

Gas & Oil at a Glance: 05/03/05

For the third straight week, gasoline prices held steady, averaging out at $2.23.5 per gallon across the United States for one gallon of Regular Self Serve Unleaded, based upon figures released by the Energy Information Administration.

The West Texas Intermediate grade of crude oil, which has been sloshing around in the lower 50's for a 42 gallon barrel for these three weeks, actually broke through the $50 mark in the last seven days before recovering to end at $50.92. That is a $1.15 loss from $52.07, the going rate during the previous week.

The two statistics that I derive to give a little more context to gasoline prices are currently at high levels, in relative terms. The Gas to Oil Price Ratio is presently at 1.84, with just one exception, the largest that it has measured during the 14 weeks in which oil has sold for $50 or more. At 102.26 cents, the 'Spread', the difference between the price of a gallon of gas and the cost for the same quantity of oil, also is the second highest that it has ever been when the going rate for oil is $50 or greater.

In my April 26 post, I probably tried to get a bit too fine in anticipating the future, calling for a slight decline during this past week, and anticipating that petrol prices would begin rising again was we rolled into early May. At this point, I'm not so sure. One trend that I've noticed as I pay attention to the petroleum markets has been the tendency for the GasPriceWatch.com service's daily average prices to exceed their counterparts by several cents either way.

For instance, as I write this article very early on Monday morning, the more established and more widely referenced American Automobile Association's Fuel Gauge Report shows a national mean of $223.5 for gasoline, in exact agreement with the number released by the Energy Information Administration. On the other hand, GasPriceWatch is some 4.5 cents lower, revealing a $2.19 national average.

What is compelling about this difference is that, as long as I've been watching, the prices paid for gasoline have gone in the direction indicated by GasPriceWatch, for the very most part. That would be one sign of slightly lower pump prices in the immediate future. Couple that with my own two specialty stats being at rather high levels, and there is further reason to believe that a small measure of relief is likely.

On the other hand, while availabilities of hydrocarbon stocks are ok at this time, they may be less so soon. The vaunted 'Summer Driving Season' is fast approaching, when demand typically increases and the capacity of refineries is taxed, factors leading to a renewed surge in the toll for petrol. What may moderate this anticipated increase is the fact that the rate of economic growth is slowing in the U.S., accompanied by the suggestion that the early 70's nemesis known as 'Stagflation' is again rearing its ugly head.

What makes the most sense to me at this point: We will see payouts at the pump probably diminish by a few pennies during the month of May. Going into June, I'm expecting to see gas prices back on the rise. The silver lining in this dark cloud is that, while I had been envisioning $2.50 a gallon gasoline as a distinct possibility during the summer of 2005, right now that strikes me as less of an eventuality, since all things financial are not moving along at the faster pace that has prevailed during the last couple of years.

To those hoping for any kind of real relief, with gasoline retreating to well under $2.00, short of the world's business activity diving head first into the dumper, that's not in the cards. We are simply in a long term context in which more people desire a commodity that is limited in availability. If you didn't click on the link in this feature last week, I encourage you to take a look at a graphic provided by the Energy Information Administration. As one picture that is in fact worth a thousand words, it gives a good visual perspective about where available petroleum supplies stand and have stood in the past, compared to demand.

As my ongoing disclaimer, the circumstance that could bring about an extraordinary elevation in petroleum prices is a disruption in the comparatively tight inventories of oil and gasoline, a condition that we've been living with for some time. Thankfully though, all appears well on this front, at least for now.

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