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.


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