Retail fuel prices in the United States have smashed the records and show no signs of reversing course — bad news for drivers heading into the summer vacation season.

The explanation is fairly easy — crude oil prices have quintupled since 2002 because of rising global demand and constraints on supply, and fuel prices have risen in turn. But there are also some eyebrow-raising oddities of note.

Among them, gasoline prices are at a record even though supplies are brimming at levels not seen since 1993. Back in 1993, a you could get a gallon of gas for 99 cents if you put a little effort into it. In fact, supplies are so high right now that oil refiners like Valero are even slowing production because they’re having a hard time making money with the cost of crude eating away at the bottom line. While the swelling inventories are of little comfort to people paying up at the pumps, it could be worse. Lower supplies would almost certainly raise gasoline prices further.

Another oddity: diesel is WAY more expensive than gasoline. This is odd because diesel has traditionally been the cheaper of the two fuels in the United States as it has been easier to produce and there has been relatively less demand for it. But recent environmental regulations slashing sulfur content in diesel alongside rising consumption of the fuel in places like Europe and Asia have changed the dynamics, pushing up the cost of production and the level of exports to overseas markets. The surge in diesel prices is not just a headache for people with diesel Volkswagens. It is a huge problem for trucking companies, major courier services, and other industries. Also, because of the close relationship between diesel and jet fuel, airlines have been taking a severe hit.

Another outwardly bizarre situation in the energy markets is the fact that OPEC — which only a few years ago said it wanted to keep oil in a range between $22 and $28 per barrel — has declined repeatedly to raise production with crude in triple-digit territory. Part of the concern, they say, is the uncertainty of future demand with the U.S. economy slowing down. Probably a reasonable worry, after the cartel got burned a decade ago in similar circumstance, raising output to head off a looming recession only to see crude prices fall to historic lows a couple of years later.

Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007.

The world’s biggest oil company and the world’s No. 7 crude exporter are trading blows in a dispute that is further eroding the U.S.-Venezuelan relationship and putting energy supply on the line.

Exxon, which was pushed out of a huge Venezuelan heavy oil project last year as part of a nationalization drive, has taken the country to court in an effort to secure compensation, winning orders freezing $12 billion in Venezuela’s assets around the world. 

In response, Venezuela has railed against Exxon’s legal “terrorism” and has stopped oil sales to the company. Venezuelan President Hugo Chavez, who has accused the Bush administration of backing a failed coup to overthrow him, has also said Exxon’s courtroom assault is part of a plan orchestrated by the Bush administration to oust him.

Big scary moves that could further cool the already frigid relationship between Washington and Caracas, which have steadily declined since Chavez first won office in 1998 despite the two nations’ close economic ties.

But for the moment, there doesn’t seem to be much real impact on the availability of oil to the market. While oil prices have rallied on the rising tensions, analysts say the effect of the fight on U.S. oil supplies and on the operations of Exxon Mobil or Venezuela’s state energy company appear almost nil.

“Venezuela doesn’t want to halt sales because Chavez needs the revenue,” said Eric Wittenauer, analyst at AG Edwards.

“It looks like Exxon Mobil can pretty much buy from others the same oil Venezuela is denying it,” said Mark Waggoner, president of Excel Futures.

By the looks of the $3-a-gallon prices at the U.S. pumps, you’d think gasoline supplies were running out. Oddly enough, they’re brimming. The latest data from the Energy Information Administration shows inventories have grown to their highest level since 1994, when a gallon of the fuel went for a buck.

Before you become outraged…

The increase in inventories IS expected to push prices lower over the winter, possibly by as much as 50 cents, experts said on Wednesday. The main reason prices are pointing lower and supplies are pointing higher is that Americans — pressured by recent high energy costs and an uncertain economy — appear to be reducing their consumption.  

There’s talk of a recession and foreclosure rates are still through the roof.

But pricey gasoline still tops the American consumer’s list of worries, according to the National Association of Convenience Stores (NACS), which released its second annual consumer survey on Monday.

About half of U.S. consumers (45%) say they’re more likely to change their spending habits due to high gasoline prices than they would for rising home energy costs (26%), rising food costs (24%), a slowdown in the economy (22%) or the mortgage and lending crisis (13%).

Most American drivers haven’t cut back on their driving yet though. Thirteen percent said they’ve already cut back, and another 50% said they’ll hit the brakes at $3.25 (a penny higher than the current record of $3.24 in May 2007)

During the last year, soaring gasoline prompted 19 percent to switch away from gas guzzler; another 19 percent said they just thought about it.

Higher gasoline prices have consumers literally pinching pennies, the survey said, with 38% willing to drive 5 minutes or more out of their way just to save 1 cent.

Will going out of the way pay off for thrify consumers? Most likely, they’ll be driving themselves into the red, losing about $1.40, says NACS.

For U.S. drivers, motoring has always been about freedom. Now some folks are saying pumps that offer drivers whatever blend of ethanol they like mixed into motor fuel will increase demand for the biofuel. 

“The future for the entire country is going to be blender pumps. And that will give the consumer the option to put the blend of ethanol they’d like into their car,” Jeff Broin, the CEO of private ethanol company POET said at the Reuters Global Agriculture and Biofuel Summit this week.

Broin, whose company is the top U.S. ethanol producer, said the so-called blender pumps offer drivers the choice of motor fuel mixed with either 10, 20, 30 or 85 percent ethanol. Currently there are a few blender pumps in his home state, South Dakota, as well as Minnesota.

But the great majority of U.S. drivers only have the option of filling up with E10, while some fuel stations, mainly in the Midwest and Texas, offer E85.

Unfortunately for bargain hunters, ethanol’s lower energy content compared to gasoline makes E85 blends more expensive than regular gasoline.  But other drivers may like to pay up because ethanol has higher levels of octane than gasoline.

More choices could boost U.S. demand for ethanol, an industry whose capacity has grown 45 percent this year, amid government mandates and incentives, he said.

Some blends may even be more economical. A study last month said E20 and E30 blends give drivers better fuel economy than either E10 or E85. 

And the pumps have powerful friends.  U.S. Presidential hopeful Democrat Barack Obama and several other Midwest lawmakers last year threw support behind more freedom of ethanol choice.  

While others say regulations would prevent the pumps from spreading nationwide, Broin  holds out hope, in part because the pumps could make him a tidy profit.  “It allows the ethanol plant to haul the ethanol directly to the station… rather than take it to the terminal and pay the extra freight on it… It is a bonus for station owner as well as the producers,” he said.

Of course, to burn anything higher than E10, you need to drive a “flex fuel” car, which auto makers are producing more of these days.

Would you buy more ethanol blended fuel if there were more choices?

$100 a barrel didn’t last long.

After skyrocketing to the all-time peak earlier this month, oil prices have dropped 10 percent to a slightly more managable $90 a barrel — and the world’s energy brainiacs are a bit conflicted over whether this multi-year rally is over.

 Why? To borrow from James Carville, it’s the economy, stupid.

A housing crisis and a credit crunch (not to mention the high price of gasoline at the pump) are showing signs of dragging down U.S. growth. Some economists are predicting a recession. Such a slowdown in the world’s biggest energy consumer has the potential to slow fuel consumption, analysts say – crimping trucking, travel, and manufacturing — and could also threaten the runaway growth in energy demand from developing nations like China. Meanwhile, auto companies are busy designing smaller, more efficient cars in a rush to fuel economy not seen since the 70s.

On the other side of the coin — and there always is one —  OPEC appears to like strong oil prices. The cartel, which shrugged off calls for an output hike in December when oil first flirted with the triple digits, has been equally cool to Bush’s request this week for more supply, signaling a continued tight-fisted policy.  Add to that the weak U.S. dollar and foreign government fuel subsidies that experts say could insulate non-U.S. energy consumption despite a U.S. slowdown, plus instability in big oil producer nations, and you’ve got the ingredients for continued high oil prices. 

Guess we’ll have to wait and see.

The year just past was the perhaps the biggest for commodity investors in decades. Indexes comprising energy, metals and agricultural commodities ended the year up almost 30 percent on average, an embarassment of riches compared to the paltry rewards in the global stock and bond markets.

Will the commodities craze continue in 2008? Gold, silver, crude, heating oil, copper, wheat, soybeans, orange juice and cocoa prices are soaring on the first trading day of the year, so the signs are auspicious.

Commodity indexes 2007
S&P GSCI +32.6%
DJAIG +16.1%
RJ-CRB +22.8%
RICI  +31.0%
DBLCITR  +41.1%
Average: +28.72%

Other indexes
S&P 500 Index + 4.24%
Lehman Aggregate US bond index + 6.63%

President George W. Bush will sign into law an energy bill this week that will boost fuel efficiency of U.S. cars and trucks for the first time since 1975, and require a huge increase in the use of biofuels like ethanol.

The move comes in a year oil prices struck an all-time high near $100 a barrel amid concern that demand is rising more quickly than supply.

Oil prices have slumped more than 10 percent in less than two weeks as traders focus on signs a slowing U.S. economy could cut into world energy demand growth. After climbing to a record over $99 a barrel Nov. 19, the price of crude has dropped to below $88.

The decline in crude prices may eventually filter down to consumers in the form of cheaper gasoline and heating oil. But it could also lead oil cartel OPEC to decide against a widely-requested increase to crude output when it meets in Abu Dhabi on Dec. 5.