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.


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