The US Thanksgiving Holiday is right around the corner. It's a special time for most Americans. We gather with our families, think about what we're grateful for, eat ourselves silly and watch the hapless Detroit Lions lose their annual holiday football game. Detroit hasn't won a game all year. On Thursday they will face the undefeated Tennessee Titans. That Detroit will lose to the Titans is almost a sure bet.
But thanks to the state of oil market, we're losing faith in "sure bets."
The last sure bet heard in the oil market was that crude would stay above $150/b for 2008.
Pundits predicted we would look back fondly at $3/gal gasoline as a quaint price we paid before gasoline got really expensive.
US Gulf Coast gasoline prices peaked this year in the spot market at $4.74/gal right after Hurricane Ike re-landscaped Galveston Island on Sept 11. But it’s fallen hard ever since….
On November 20, USGC gasoline dipped under $1/gal for the first time since Dec 2004. In just 10 weeks, prices fell a staggering $3.77/gal.
So much for sure bets in the oil market.
Besides imploding crude prices, many traders are crediting weak naphtha demand for the current state of gasoline prices. As global markets financial markets melted down, consumer demand came off. That meant less petrochemical production. Less petrochemical production meant fewer refiners buying naphtha as a feedstock.
Naphtha has dipped to 10 cents/gal under gasoline and as it gets blended into the USGC gasoline supplies, people expect the spot gasoline price to fall further.
How far can it fall?
The worst case scenario is that Washington DC can't pump enough cash into the financial markets to offset the credit default swaps debacle. Unemployment and bankruptcies would rise, demand for oil would fall and crude would dip into $20. Gasoline? Some say that could translate into a 40 cent/gal spot market price.
The current best case scenario is OPEC turns off the oil spigot and crude stabilized in the mid $40/b range. That would give us a possible 85 cent/gal floor for spot USGC gasoline.
So what is the sure bet?
Well, experience tells us not to try to predict where crude and gasoline will head.
The only sure bet for next week is…
The Titans will beat the Lions and at least someone at our dinner table – happily driving a 15 mpg vehicle - will say they are thankful that retail gasoline is firmly under $2/gal.
Lets not jump all in on the Titan bandwagon just yet, perhaps you might check the spread. Happy Thanksgiving to all, and remember the spirit of demand for the holidays.