A few observations from the world of oil price mania

I’ve been interviewed recently by two separate television networks, and either the producer or on-camera “talent” felt it necessary to say the same thing: “I’m sick of this gasoline story.” How many times can you stick a microphone in somebody’s face, asking them to comment on their feelings as $4 gasoline flows into their SUV and the cost of the fillup nears a C-note?

But bear with us as we make a few side observations:

It’s an old formula, but it’s a good time to take a look at gold vs. oil. How are these two inflation hedges doing against each other?

There are lots of ways to look at it, but we’ll take an easy one. In a history we did looking at the spread between gold (the daily Handy & Harman price) and the price of WTI, going back through the Platts’ assessment from 1984, we found that the average number of barrels of oil it took to buy one ounce of gold was 15.73.

That has varied quite a bit over the years. For example, in 2008, when oil hit its all-time high, the ratio was 9.69, and there were times as its raced toward in midyear peak that it was less than seven.

In 1998, when oil prices, adjusted for inflation, were at their all-time low, the ratio averaged 20.66. That’s with gold at relatively low levels too, given the taming of inflation and the strength of the equities market.

Now? It seems a lot closer to that almost 27-year norm. For all of 2010, the ratio was 15.44, just a mere drop in the bucket difference compared to the average since 1984. This year, with oil moving up at a higher rate than gold, it has slipped to an average of 14.44. And as of Wednesday, it’s at 13.35.

Thinking the ratio must return to the 27-year norm is a bit of a stretch. That data that goes into that average includes oil busts, a long battle against inflation that started in the early 1980’s, the dot com boom, the real estate bust; how do you even figure out what the norm is?

But if the ratio from now is going to revert back to the norm of the last year or two, then oil has to go down, or gold has to go up.

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A radio station called Platts recently and wanted to do an interview on President Obama’s creation of a “task force” to investigate the rising price of gasoline. This task force would consist of investigators and lawyers, presumably, who would search through the deepest, darkest recesses of the oil market to ensure that there isn’t anybody out there engaging in activities to ensure price increases in the 88 million b/d of oil the world consumes every day.

The reporter asked a question that is rarely discussed in these stories. Specifically, haven’t there been similar investigations in the past? And haven’t they generally failed to turn up anything?

So we went diving into our archives. A simple search under the terms “gasoline… price… investigation” turned up the stories that you can find here, a seemingly endless array of probes into whether the price of oil over the past few years was being driven higher by the actions of nefarious forces.

(There were actually more stories than this, but this was long enough to make our point.).

The funniest one is the story that notes that back in the wake of Hurricane Katrina, TransMontaigne was fined a total of more than $10,000 for actions at two Florida terminals, by the state itself. Now, everybody in the gasoline business knows that Katrina was a disaster for TransMontaigne, caught in a squeeze between two different price bases for products coming in, and products going out. That it was fined for pricing irregularities while it bled so much red ink had to be the ultimate irony for its management.

We did find a few legal settlements. But they have the feel of companies that decided that paying a fine and having the allegations go away was preferable to fighting the charges and paying the lawyers gobs of money to get that job done.

So as you can see by the sheer length of this list of Platts stories, the Obama administration’s task force isn’t the first such investigation, and it isn’t likely to be the last. But it almost assuredly will have as much impact on the price of oil, and success in finding the bad guys, as previous forays.

Platts