Every day, I’m shufflin’
Oil prices, that is. Average U.S. gasoline prices will drop below $3.25 gal in the next few days, and spawn talk of a possible intersection with last winter’s numbers. Moving below year ago numbers (about $3 gal) is always a possibility, particularly when one looks at demand trends in the United States and Europe, but for now I’ll bet we don’t see the intersect for say five or six months.
Year-to-date, motor fuel prices have averaged $3.5223 gal and the final 2011 number should be within a fraction of $3.51 gal. Based on recent demand trends (more on that in a bit) the total U.S. gasoline bill this year will be just above $481-billion. That smashes the all time record of $448-billion in 2008, and compares to a cost of about $389-billion in 2010. As recently as 2009, the total was $324-billion and we drove considerably more miles in 2009 and 2010 than we will this year.
My mood has become elevated in recent weeks because I have a new puppy that greets me enthusiastically each day when I return home to the Sunni Triangle (wife and two daughters). But the greatest philosophical mistake someone can make is when they project their particulars on a broader universe of individuals. Americans remain in a nasty mood, and high fuel prices are a factor.
Based on statistics provided by OPIS Retail Director (and Statistical Voodoo Witch Doctor Extraordinaire) Fred Rozell, American households are on pace to spend $4,155 on gasoline in 2011. That dwarfs last year’s estimated cost of $3,315 and calculates to 8.4% of income getting dedicated to filling up family vehicles.
Note: The breeder told me that my 100% Cairn Terrier should be house trained within two to four weeks, and that statement came seven weeks ago. At this point, I believe the dog’s pedigree to be contestable - - the dog is part Pez Dispenser, I believe.
Here Comes Your 19th Nervous Breakdown
Was this a subtle way of invoking the Stones so that I could boast I got the moves like Jagger? No, I got the moves of Stephen Hawking, so it’s just a catchy subtitle. But stay with me.
Regular readers know that I often preach regarding the tidal predictability of oil prices, and particularly of gasoline. I’m also a believer in technical analysis, which at some level merely allows statisticians to correlate tides in historical context.
Retail gasoline prices follow wholesale price trends. There may be a delay, or a rocket-and-feather relationship, but higher wholesale costs translate into pump price increases, and lower wholesale expense translates into price drops. Here’s where it gets interesting.
The great benchmark for U.S. wholesale prices is the RBOB futures price, which you can see ticking in front of your eyes on CNBC, FoxBusiness, Bloomberg, and many other channels in real time.
RBOB futures today dipped as low as $2.4733 gal ($103.88 bbl). They have spent most of 2008 at anywhere from $2.50-$3.40 gal.
Today’s number represented the twelfth time that the market has traded in the $2.40’s since October. The October through January period typically delivers the low tide mark for gasoline futures each year before spring tide takes things higher.
You’ll hear a lot of technical analysts talk about “double bottoms” or even “triple bottoms” and the references are not to our gelatinous New Jersey governor. Right now, we have a price point candidate for a seasonal low tide of about $2.45 gal. That number may or may not give way to a lower number in the next six weeks or so.
If $2.45 gal is indeed the bottom, a typical average winter-to-spring rally would provoke a wholesale price increase to perhaps $3.67 gal next spring. Given that nationwide retail prices typically fetch 60-70cts gal above wholesale numbers, such a rally would point to $4 gal plus motor fuel next spring.
I’m reluctant to call $2.45 gal as the wholesale bottom, and we’ll see lower retail gasoline prices between now and the beginning of 2012. But the RBOB futures market deserves special scrutiny between now and Groundhog Day. Autumn and early winter trading is a search not for fuel price stasis, but for the launching pad.
There’s Something Happening Here, What It Is Ain’t Exactly Clear
Earlier this autumn, U.S. inventories of crude and petroleum products were at a deficit of nearly 100-million barrels from last year. That deficit has narrowed in recent weeks to about 40-million barrels.
If I were secluded in a hollowed out volcanic lair, and analyzed recent Energy Information Administration (EIA) demand data in that vacuum, I would probably conclude that the United States is in recession. Employment numbers and other statistics from government agencies suggest otherwise, but petroleum data is mysteriously soft.
Total petroleum demand last week, for example, was measured at 18.4-million barrels per day, down a stunning 1.8-million barrels per day from the same week last year. A one week snapshot is never as revelatory as the greater resolution of a broader period, but four week average numbers are equally compelling. Four week average petroleum demand is down 5.6% from last year: thanks to a 4.5% drop in domestic gasoline consumption; a 14.3% plunge in residual fuel usage; and an 18.7% drop in the “other oils” category. The other oils’ category is often indicative of industrial demand in the U.S.
This week did record the highest export total for distillate (diesel and heating oil) that we’ve ever recorded in the U.S., with 1,072,000 barrels leaving the U.S. for foreign destinations (mostly South America) each day. The robust export market has distracted analysts from a closer inspection of the anemic U.S. demand market.
One also wonders why U.S. gasoline demand destruction has accelerated through 2011. Vehicle Miles Traveled (VMT) data published by the Federal Highway Administration is published 2 ½ months after rubber hits the road. September 2011 numbers suggest that Americans traveled 244.2-billion miles this September, or 3.7-billion miles below September 2010. The January-September 2011 numbers show 29.8-billion fewer miles, representing the lowest nine month total since 2003.
A report from the University of Michigan Transportation Research Institute crossed my desk this week and it claims that new vehicles sold in the U.S. in November had an average fuel economy of 22.7 mpg, up from 22.6 mpg in October. The most ancient date on the website is October 2007 when new vehicle fuel economy was 20.1 mpg.
Ultimately, it’s not clear whether CAFE standards, changes in habits, challenging economic conditions, or conservation are behind the trend toward lower consumption. Perhaps it is a combination of many different factors.
Odds & Ends
- The ethanol tax break, which amounted to 4.5cts gal for most gallons of motor fuel sold in the U.S. is going away on December 31. That does mean that the cost of gasoline for wholesalers and retailers (and presumably, consumers) rises by 4.5cts gal on New Years’ Eve. But we regularly see wholesale prices decrease or increase by 5cts gal or more on many days, so blaming ethanol or gasoline producers or politicians for higher 2012 gasoline prices is a silly notion.
- OPEC met this week and agreed to raise its output ceiling to 30-million barrels per day of crude oil production. The cartel has been producing about 30.7-million b/d most recently. The new ceiling simply takes into account the cheating (or as OPEC prefers to regard it, the “leaking”) of crude oil beyond quotas. Goldman Sachs chose to spin this outcome as bullish, as though an undisciplined cartel is on the verge of being cohesive. They may have the same spin doctors as the Kardashians.
- Why do internet and telemarketers incorrectly assume that anyone who has been in the oil business for 35 years is rich. I am not. I have learned to right click and delete on email from NetJets, Sentient Jet, and other “fractional” jet charter companies, but a camel’s back of straws arrived this week in the form of an African Safari offer. Lew Harris Safaris quotes the incredibly reasonable rate of a one-on-one guide/hunter package that will let me choose two game animals from a list that includes Black Wildebeest, Blue Wildebeest, Red Hartebeest, Gemsbok, Impala, Warthog, Mt. Reedbuck, and Ostrich. I’ll pass.