Today, I’d like to do nothing more than debunk some long standing, and some brand new myths that are being cultivated in the Petri dish of modern media, internet screeds, and shallow observation. This is a good day to step back from pure matters of price -- -street prices for gasoline have treaded water for most of the week, with California numbers actually backing off from yesterday’s record high. The nationwide unleaded regular average stands at $3.037 gal today, some 2cts gal below the all time Labor Day weekend 2005 record, and for the Chicken Littles in the maddening crowd, some 96.3cts gal below that titillating $4.00 gal level.
Myth Number One: U.S. drivers have been unaffected by rising pump prices and have ratcheted their fuel appetites higher this Spring even as prices have surged above $3.00 gal.
Most recent Energy Information Administration (EIA) data, released yesterday, shows that this is not true. Remember: what passes for analysis these days is often a mixture of nonsense and cheerleading, and I suspect that many analysts will pay little attention to the trend noted in recent 2007 numbers.
Let’s look at a sequential list of the numbers that represent year-over-year “lift” of the four week running average of U.S. gasoline demand. Four week numbers offer an HD version of trends, whereas single weeks can often show glazed snapshots of what is truly happening in the nooks and crannies of our country. Herewith, I offer the sequential numbers in 2007 reports for four week average gasoline demand hikes versus the same period in 2006. They are: 0.5%, 0.8%, 1.2%, 2.2%, 3.4%, 3.9%, 3.6%, 3.8%, 3.6%, 3.3%, 2.8%, 2.1%, 1.6%, 1.7%, 1.6%, 2.5%, 2.3%, 1.6%, 1.0%.
Notice anything? The year-on-year demand “lift” was spectacular from early February through early April, but there is barely any “lift” at all now that average street prices have reached $3.00 gal. The resolution available in this panoramic four week running average clearly suggests that gasoline demand “lift” is slowing, and it needs to be watched closely in the next few weeks.
Myth Number Two: The effective gasoline boycott. A quite viral email has been bandied about for some two weeks, and it proclaims that if everyone desists from buying gasoline on May 15, we will send a message to the oil patch, and quite possibly send prices into a tailspin. The anonymous email says that a similar action in 1997 brought about a 30cts gal slide in pump prices.
We checked the retail price record for 1997 as well as the wholesale price and gasoline futures’ price records. There was no such slide, and of course, there was no such boycott. When I think of 1997, I think mostly about the Spice Girls and wonder what became of them, other than Victoria Beckham, who is still a daily target of the Papparazzi.
There may be some traction with this 2007 boycott, and indeed nearly every print and electronic reporter has been asked about its origins and the supposed success attached to the effort ten years ago.
It dovetails with another myth - - -the myth that the most demonstrative way to send major oil companies a message that “I’m fed up, and not going to take this any more” is to boycott the evil stations. Well, the vast majority of service stations are no longer owned by refiners or integrated oil companies, and quite a few represent the life savings of families in developing countries. Those “new Americans” saved up their rupees, dinars, yuans, and pesos in order to buy a small business in the U.S. and give the American Dream a try. Any boycott against these folks is ill-conceived, and merely punishes the messenger for the message.
And the prospect of Americans giving up one day’s worth of gasoline purchases in protest strikes me as the equivalent of a morbidly obese angry man sacrificing his Wednesday afternoon “Biggie Fries” as a means of sending the fast food industry an ultimatum. It’s just plain silly.
Myth Number Three: There’s really nothing that Americans can do to bring fuel prices back in check. This is nonsense if one believes that there is still any remote chance that Americans are capable of sacrifice for a common goal. Politicians don’t ask for sacrifice anymore regardless of what side of the aisle they sit.
The difference between a gasoline market that is perceived to be “tight” and subject to possible supply dislocations, and one that is sloppy, and prone to pricing downdrafts, is quite slight. It is much akin to the one degree difference that separates water and steam.
Let’s put it this way. Gasoline is selling for $30bbl to $50 bbl above crude because the trading community believes that we might see demand exceed supply by say one percent or so. Right now, demand is running about one percent above last year (see Myth 1 for reference). Most professional traders would concur that if the market delivers one percent of “demand destruction” in early Summer, much of the froth in prices will decompose.
What would it take to knock one percent off demand? If 100 million drivers bought in to the notion of sacrificing one gallon per month (let’s say June) and made a commitment to do so, we’d use about 11.4-billion gal in June as opposed to 11.5-billion gal. That would represent flat demand versus demand growth of one percent to 2006.
Do the math. A single gallon sacrifice in one month adds up to 4.27 ounces per day of fuel left behind. If this back-of-the-envelope exercise estimates that most motorists get 20 miles per gallon, that works out to be about 0.15625 miles per ounce.
By my calculations - - and those of you who did better on the SAT Math section than I did may want to verify this - - Americans would have to cut their driving by about 3522 feet less each day in order to save a gallon in a 30 day month.
That’s not exactly a Labor of Hercules. Oh, but that’s another myth entirely.