The Bin Laden After Effect on the Oil and Gasoline Market

Includes: CRUD, OIL, XOM
by: Bob van der Valk
The oil market turned around this week and spot market gasoline and diesel prices in turn went back down the week of May 1, 2011. This goes against the grain of what usually happens when American Petroleum Industry (API) and Department of Energy (DOE) inventory reports show draws for both gasoline and diesel.

On May 6, 2011, the Nymex reported West Texas Intermediate crude oil decreased another $2.40 to $97 a barrel for the front-month contract. The Brent crude oil price on the Intercontinental Exchange of London is at $109 a barrel after almost touching $130 a barrel in late April. Crude oil prices are now 20% off their peak, with the steep decline coming since Monday, May 2, 2011. The “fear factor” of $15-$20 a barrel built into the crude oil market, since the beginning of conflicts in North Africa and the Middle East, has effectively disappeared.

The average price for unleaded gasoline in the U.S. was $3.982 per gallon on Wednesday and may touch $4 soon. But the demand for gasoline is down, with numbers from March showing a steep decline-- displaying the effects of ever-increasing gasoline prices.

The AAA Fuel Gauge report on May 4, 2011 showed the following fuel prices:

Current Avg.
Yesterday Avg.
Week Ago Avg.
Month Ago Avg.


Year Ago Avg.

Highest Recorded Average Price:

Regular Unl.

The national price for unleaded regular gasoline may peak at $4 per gallon, with California currently at $4.265 and the State of Washington at $4.018, staying about the same by the end of this week.

The news of Osama Bin Laden's death on the night of Sunday, May 1st gave the country great relief and a chance to celebrate in spite of our economic situation. The dollar stayed weak but prices for both West Texas Intermediate and Brent crude oil went down, which caused wholesale gasoline prices to go down 20 cents per gallon since Monday.

The world woke up Monday morning with a new attitude and oil traders took heed by turning bearish. Last week’s Commodity Futures Trading Commission (CFTC) report showed paper traders with record longs in the market, a position which bets on oil prices continuing their increase. Money managers increased their net length by 2.8%, setting an all-time high when you look at both futures and option positions. However, this report was prepared before this weekend’s big events in Asia and North Africa.

U.S. gasoline consumption fell last week and maintained a deficit to year-ago levels. The SpendingPulse report showed demand for gasoline decreased by about 93,000 barrels per day (b/d), or 1%, to an average of 9.157 million b/d for the week ending April 29. Compared to the same calendar week in 2010, demand last week was 0.6% lower and the week's demand was 1.2% lower compared to a year ago, it was the second week in a row in which the year-over-year gasoline demand shrank.

U.S. motorists have been told speculators, unrest in the Middle East and North Africa, natural disasters, a weak U.S. dollar and world demand were the causes for the march towards the seeming inevitability of seeing $5 per gallon gasoline at the pump. However, this march towards a never-before-reached milestone seems to have been broken for the time being.

However, the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) set standards for gasoline creating areas in the country with boutique gasoline requirements. That is the main reason for the huge price differentials in parts of the country, other than federal and state taxes.

The following ExxonMobil map shows areas of the U.S. affected by these oxy fuel or RFG compliance requirements for gasoline: (Click to enlarge)

The worst area of the country to be hit by these requirements is Chicago, with gasoline in the Windy City currently the most expensive in the nation at $4.467 per gallon. They perhaps will hit the $4.50 per gallon mark by the end of this week but then prices will come crashing down.

Fair warning the adage: "Gasoline prices shoot up like rocket, drift down like a feather" will apply as major oil companies slow down passing the lower cost for crude oil along to their branded retail station accounts. The independent non-branded station prices will be the ones reacting quick to their new found advantage by lowering their pump prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.