A war in Iraq is already built into the markets. We’ve been paying for it since August! Is there any support of these prices other than fear of the unknown? NO, not really. I feel the markets will go down as soon as all the political factions have agreed to disagree and go back to working on policies not affecting crude oil!

The fuel markets have predictably went up since August, 2002. I feel that our markets are up 5-10 cents per gallon because of supply reasons. The remaining 35-40 cents per gallon we are paying for is because of fear and uncertainty

The un- known always costs us more than the known. I call it the Fear Factor. The more you hear it in the media the more your fear of the unknown grows. So everyone tries to buy all they can so they’re sure to have it when they need it. I think the market is set to fall, fall, fall, fall, fall. There is no substantial phy- sical support to keep the prices up…only fear.

Gasoline Markets

Gasoline prices are difficult to grasp and understand yet readily available to see and complain about. The whole driving world can observe and react to the prices of gas because they drive by stations every day. Contrary to popular belief, gas stations are slow to react to the market. The majority of the time when you see gas at a station go up, the terminal prices have already gone down and visa versa. The other changes made at gas stations are generally made in response to the competition. All in all the street price on gasoline is not a very good gauge of what prices are actually doing.

I expect to see gas prices strengthen in the next 2 months. The change over from winter gas to summer gas always poses an inventory/supply problem, which combined with increased driving always put pressure on gas prices. Generally #2 diesel and 87 octane are close to the same price per gallon. As spring approaches, I would expect the spread to widen out to 15-20 cents per gallon. By fall I think you will see gas back below $1.50 per gallon.

Diesel Markets

After the August announcement from President Bush that we were going to attack Iraq we saw prices shoot up around 20 cents per gallon. After the fall harvest we started to see some relief and fuels started to drop. We basically had one week to enjoy the drop, when Venezuela oil workers went on strike. This added an additional 5-10 cents per gallon to our prices in December. We bounced along in January experiencing our first "normal" winter in 5 years, but not seeing a lot of price changes. However as winter held on into February and talk of fuel oil shortages started to surface and the whole country had heard talk of war now for six months and the thoughts of the worst things that could happen started to be in everyone’s forethoughts prices jumped another 20 cents per gallon.

Do I think they’re going to stay there? No. Do I know when they’re going down? No. I do know that warm weather will ease the pressure on prices and that a resolution in the Middle East, Venezuela settling their oil strike and the media not having fuel as their nightly opener will significantly drop prices. I personally think that our fuel markets are top heavy and they can’t bear any more speculation. I believe we have about 40 cents of unjustified fluff in our markets. We’ve been paying for the war for 6 months. I think if war starts you will see a 3-5 day spike in prices and as the dust settles the market will be on a rapid decline. If war isn’t started, then time itself will diminish the threats and you will still see a gradual decline in the overall market. I think the first scenario gets us where we want to be in about 60-90 days and the other one gets us there in 6 months.

Recommendations

I feel it’s a time to go hand to mouth on fuel, only buying what you need in the short term. I don’t feel that we’re going to have a problem getting product, although I do expect some short-term local shortages at the terminal levels. Yes the market could go higher, but the chances of it going lower are greater. In my 14 years in Central Michigan $1.40-1.50 per gallon on premium diesel would catch the highs and $ .65-.70 per gallon would catch the lows (tank wagon deliveries). My feeling is, if you’re already sitting at the top, why lock that in? I would rather pay for only what I have to get and play the odds that the market will soften. We may very well be in the $1.25 range come spring but I think you could see $.85-.95 by mid summer.