Tuesday, June 14, 2005

Gas & Oil at a Glance: 06/14/05

Oil began floating in the mid 50's last week and, based upon storm and capacity fears, then ascended some, ending up yesterday at $55.62 for a 42 gallon barrel of West Texas Intermediate Crude. The increase over the seven day period prior was $1.13. The lotion that gives us motion has now proceeded to near record highs, bloating nearly seven dollars since May 23rd.

Gasoline followed the same path, but it did so like a reluctant dog on a leash. As of Monday, according to the Energy Information Administration, it was pegged at an average price of $2.13 across the United States for one gallon of Regular Self-Serve Unleaded.

That's only 1.4 cents more than last week and a comparatively minimal 4.3 cents from two weeks ago. Go back just one more week, and you'll see that, while gasoline was going for a mean of $2.12.5 on May 23, oil's toll was $48.66. Now, even though we see gas commanding a mere one half cent more, oil has ballooned close to $56 a barrel.

This revised relationship between gas and oil prices is reflected in the two statistics that I have come to rely upon, the Gas to Oil Price Ratio (GOP Ratio) and the 'Spread'. As the term suggests, the GOP Ratio reveals the extent to which the present price of oil constitutes that of gasoline at the corner filling station. It currently calculates out to be 1.61, the lowest that it has been since March 21, nearly three months ago.

The Spread, the amount that remains after subtracting the gasoline duty for one gallon at retail, minus the existing cost for the same quantity of crude, has diminished as well, down to 80.52 cents, another decline that hasn't been seen in almost a quarter of a year.

All of the above strikes me as an irrefutable indicator that we should anticipate prices to climb within the next week. Even if oil attenuates, as it well could, that being dependent mainly upon announcements emanating from the soon to happen meeting of the Organization of Petroleum Exporting Countries, it seems to me as if those downstream, those who brew and bequeath upon us the fluid that our vehicles would be rendered worthless without, have some catching up to do.

My precision is lacking as far as foreseeing the extent to which gasoline prices will rise or fall over a seven day period. Yet, for the sixth week going, I have successfully predicted its direction within that time horizon.

(Excuse me while I gloat. Now, please, help me to find a way to make some money at it!)

This week, my confidence exceeds those immediately preceding. My trendline reveals that, with oil in this present range, $2.20 gas is the norm, with the variability biased towards the high side. So, this is a dollars to donuts type of bet that we'll see fuel higher by this time next week. Let's see what happens. If all goes well, I'll be back next Tuesday, to affirm, or squirm, about my stated expectations.

Looking over the bigger picture, here are two 'perspective' stories worth considering, as we continue to grasp for the forces affecting gas prices as we go forward. California Aggie gets into the implications of the peak oil concept. Playing in Peoria, there's a Copley News Service piece addressing the pitfalls of consolidation among the energy companies, especially with respect to the enterprise of refining.

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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