This is the first of three posts today from guest blogger Tom Kloza. Tom is Chief Oil Analyst at OPIS (Oil Price Information Service) and has his own blog.He has been writing about downstream oil markets since 1975 and was among the founders of OPIS over 25 years ago.
Say good bye to April, and give a hearty welcome to May, and hope that like most fifth months, it brings some relief for bubbly energy prices. April lived up to its reputation as the cruelest month and brought gasoline prices 65cts gal higher with about 25cts gal in nationwide gains for diesel and jet fuel.
Before I get into my own analysis, let me offer up some kudos to the Energy Information Administration. Earlier this year, analysts there predicted that retail gasoline prices would peak around $3.60 gal.
Yes, we’ve exceeded that number but I happen to think it will be reasonably close to the Spring peak. That will be decidedly short of the $5 gal to $7 gal price pronouncements that are popping up in newspapers with more regularity than the Jumble.
Those that study oil prices know that there is a strong tidal element to the ebb and flow of crude and gasoline. Myth holds that gasoline prices rise relentlessly into the driving season. The reality is that the wholesale prices for both crude and gasoline tend to reach high tide somewhere between Easter Sunday and Cinco de Mayo. From that high tide, there is an ebb tide that often delivers about 15-20% of price relief (use the term “correction” if you like, but I have a severe distaste for that term).
Let’s revisit where prices finished April for some perspective. U.S. citizens and businesses spent about $1.337-billion per diem on gasoline as April concluded, compared with $1.246-billion in March, and $1.1-billion in April 2007. The five year comparison is more stunning since we only paid out about $567.6-million per day back in April 2003.
A much more detailed and resonant local perspective can be used by economists for whatever purposes they desire. If I were to argue that high gasoline prices and their impact on the U.S. economy are overstated, I would cite figures from affluent counties in the New York City suburbs. In Hunterdon County N.J. and Putnam County, N.Y., for example, the amount of money spent on fuel represents less than 2% of median income.
But if instead I wanted to underscore the impact that stiff price increases have on families, I might cite figures for counties in the rural south. In Wilcox County, Alabama, for example, the cost of gasoline reflects about 15.24% of median income. More than 90 other counties in NASCAR country see fuel costs in excess of 10% of median income, so the devil is indeed in the details and the devil has gone down to Georgia, Alabama, Mississippi, Tennessee and Kentucky.
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