Tuesday, June 21, 2005

Gas & Oil at a Glance: 06/21/05

Will wonders ever cease? If only because I again correctly called its direction last week, it's a perverse sort of pleasure to say that gasoline prices at the pump went up again in this prior seven-day period. What's equally wondorous is the extent to which they didn't grow. According to figures released late yesterday from the EIA (Energy Information Administration), the average gallon of Regular Self-Serve Unleaded across the United States is now selling for $2.16.1. Compared to last week, and particularly in terms of oil getting a ton more expensive, this is a modest move higher of 3.1 cents.

Petrol is creeping at a snail’s pace compared to crude oil, which has spurted skyward, ahead well over $10 per barrel within the last
month, with nearly four dollars of that amount tacked on this past
week. When oil was being sold for $48.66 per gallon on May 23, gasoline was extracting $2.12.5 from consumer pocketbooks. Now, with a 42 gallon barrel of our West Texas Intermediate Crude Oil benchmark setting a new nominal all-time high of $59.37, I'm at a loss to explain why gasoline is only some three and one-half cents more expensive since that time.

All that I can say is enjoy this - what really should be considered a respite - while it lasts. Both of my 'specialty statistics' - intended to give a sense of where gasoline prices stand in relation to those for crude – are considerably out of whack. This week, the Gas to Oil Price Ratio is fixed at 1.53, extremely low by any standard. Since October 15, 1990, it has never been less. This is near the time when data for both gas and oil became available via the EIA and were the months prior to Gulf War I, when high anxiety about energy sources prevailed due to Sadaam Hussein‘s invasion of Kuwait.

The other figure to which I routinely refer, the 'Spread', that being the retail charge for gasoline minus the cost of the oil that goes into making it, is likewise far beneath the norm. At this time, the Spread stands at 74.74 cents, the lowest it has been since March 7 of this year. It was only a little more than one month back that the Spread amounted to over a dollar.

With crude being purchased in the neighborhood of the high 50's, my trend line is showing that fuel at retail should typically be beyond $2.30 a gallon nationally, another reason for my feeling that we have a way to go towards the upside. The only roadblock for this steamroller will be a huge retrenchment of black gold among those who do the buying, which at present, doesn't appear to be in the cards.

One other measure that I have been tracking lately, the wholesale prices for Unleaded Regular gasoline traded on the New York Mercantile Exchange, also portends motor vehicle fuel costs climbing. Last week at this time, the going rate was around $1.55 for one gallon. At this time, just seven days hence, it has escalated approximately nine cents.

The prevailing condition that is driving oil's rise is simple. Demand continues to soar, while confidence wanes regarding the ability of those possessing and processing the resource to keep up.

Of the last 18 weeks, this is the 16th in which oil has brought in over $50 a barrel. It makes me wonder if we'll soon be longing for those 'good old days', like about ONE YEAR ago, when the thick liquid crossed into the $40 realm. Considering a longer time horizon, Jim Jubak of CNBC explains why he believes oil's cost will remain elevated, if due only to the increased expense of getting it out of the ground. As well, look at the Energy Information Administration's description of the bears and the bulls on oil. Is your take, as is mine, that they seem to be slanting towards the bullish view, those who see it as scarce, rather than that of the bears, who believe oil to be an overly abundant commodity?

My best advice for the coming days: If you are one of those who just 'gotta have it' and need to replentish soon, you're very likely wise to fill that tank quickly. It appears virtually certain to me that gas is headed upward over the next week, and probably on into July, possibly with a vengeance.

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


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