Keeping up with crude oil is a bit of a migraine these days.

It’s an essential task, of course. Gasoline, diesel and kerosene play a double-faced role in our modern world. When we are ahead of the curve, they grease the wheels of the grand machine, allowing people and goods to freely seek their best markets.

But when we are behind the curve – when the cost of energy rises in anticipation of future demand – crude oil and its distilled children become the disease vector that allows inflation to penetrate into every little nook and cranny.

So we watch, wonder and speculate on crude oil’s every little spike and dip. “Was this crude oil rise demand driven… was that 50-cent drop related to changes in the dollar? Will it rise or fall next week... month... year?”

The Gnat’s View…

As I sit to write to you, I have the week’s summations in front of me. These supposedly represent the most complete picture we can have during the work-a-day week, as most all variables have been factored in.

From Bloomberg we learned that “ten of 27 analysts, or 37%, said that futures will drop through Nov. 27. Ten more respondents predicted that oil will be little changed. Seven said that futures will rise.”

Unimpressed? Just wait, it gets better! Bloomberg provides context for this remarkably vacuous reporting by noting that last week, “50% of correspondents said that prices would fall.”

The true beauty of that non-stance is that it was 100% correct – more or less. In New York, prices opened last Monday around $77.20 a barrel, then ran up just over $80. As I sit typing this screed, they have fallen back to $77.40.

How did those bold fellows come to nail it down so accurately? Pretty simple really. Crude futures have run nearly that exact range for the better part of the past 40 days. Clearly, there is no education to be garnered from these clowns.

A Slightly Longer Timescale…

Another report on my desk purports to take a longer view of these things. The Macquarie Group’s oil economist Jan Stuart claims that failing demand from developing countries will lead to excess inventory in the last quarter of 2009 and the first quarter of 2010. Macquarie is betting that crude will drop all the way to $60.

That made for a pretty impressive headline, all right. Except that by the end, Stuart totally hedges his bet. He figures that three to six months out, “the strengthening world economy will push it back to… (wait for it)… $80 a barrel.”

Is that why they call them “Hedge Funds?” Obviously, these guys at the banks are all playing it real close to the vest.

What’s Going On Below the Waterline…

Here are a couple of clues from some folks that are really bringing some serious cash to the poker table. Over the past nine months, Sudan’s crude exports to China have increased some 13% (during a global recession no less)! Now China National Petroleum Corp. (CNPC) – China’s 800 lb. Oil Gorilla – is looking to double its Sudanese refinery operation by acquiring capacity from Malaysia’s Petronas.

On the flip side (almost literally), the largest refiner in the U.S., Valero Energy (VLO:NYSE), has announced the permanent closure of its Delaware City, Del., operation. Seems the plant has been costing Valero a neat $1 million bucks a day. The board figures it’s just easier to rip this bandage off, to the tune of one-time costs of some $1.8 billion.

Valero is not alone here. So far this month, Sunoco (SUN:NYSE) announced that it was shutting down its Eagle Point refinery in New Jersey, and Western Refining (WNR:NYSE) mentioned that it might close its Bloomfield, N.M., operation.

CNPC’s Sudanese expansion is slated to become operational in 2011. But here in the States, I seem to recall reading somewhere that we haven’t opened a new refinery in over 40 years. These are major long-term moves. As such, they offer an excellent view as to what is going on “below the economic waterline,” as it were.

… And What Will Happen When These “Icebergs” Hit Our Ship

But they also offer some intriguing clues as to what’s going on in a more immediate sense. The demand for, and price of, oil may drop a bit as demand cools here in the States. But that drop may not carry on for but so long. And I suspect that the price of gasoline – and the profits generated from same will actually rise quite a bit come the commencement of next spring’s “travel season.”

Keep in mind gas’ role as the vector of inflation, and one sees that Washington’s low dollar policy has a very narrow window left to achieve economic stimulation before we begin to see real inflation undercut GDP progress.

Indeed, one could easily say that the countdown has already begun.

From Adam Lass, Editor, WaveStrength Options Weekly