Aug 26 2013 delayed
FreeVenue public release of May 26th MemberVenue guidance ~
All-grades retail gasoline averaged $3.64/gal in April ... down 14¢
from the previous month. With today's expanded visible horizon
(2030), it is easier to visualize the impending auto manufacturing
Trendlines Barrel Meter
model suggests USA Refiner Acquisition Crude will enjoy improved fundamentals
(and non-fundamentals) over the medium term resulting in $68/barrel
RAC ($62 WTI) and 2.70/gal gasoline by 1Q18. The positive
effects on car sales will be evident in 3Q13.
resumption of the secular price uptrend in 2018 will see pump price
permanently breach the Light Vehicle Sales Barrier in 2024.
With the extremely low absorption rate of electric cars and trucks,
it is probable this bodycheck to the auto sector will be devastating
to an economy already in an austerity-induced Severe Recession as
forecast by the
Trendlines Recession Indicator.
As seen in the table above, last month's avg Retail Price of
is comprised of $2.77/gal Wholesale refinery product & $o.87
Margin. In turn, Margin is made up of $o.41 Taxes & $o.46 Profit.
Historically, this compares to 54¢
Taxes & 13¢
in Y2k. Last month's
(diff betw wholesale & contract crude) was
The raw crude
component ($2.30/gal) continues to be volatile, particularly its
Stress Premium price subcomponent (comprised of geopolitical issues, weather
analysis reveals this factor added 25¢/gal in April ... down from 66¢ at the
height of the Libya crisis (April 2011). Debasement of the USDollar currently adds
44¢/gal to pump prices, down from 58¢ two yeas ago during the Budget
fiasco. General Speculation/Hedging Activity added 17¢/gal
to last month's gas price. The tightness of Surplus Capacity
enabling the Iran
sanctions added 39¢. The trivia dept advises this would be
boosted by another 13¢ should Canada's bitumen sector be shuttered
to placate the global warming alarmists.
EFFECT on USA ECONOMY
Trendlines Recession Indicator
calculates the headwind of residual rising petroleum
costs finally expired in Feb/2013.
At its height in April 2011
(Libya crisis), this factor trimmed 1.60% off the USA's GDP growth
rate, just nudging out the
(1.55%) set back in June 2008. The decline in
oil price over the past two years ($16) has so improved the
situation where this factor actually provided a 0.4% tailwind
activity in April.
Petroleum costs are generally an insignificant burden on the per capita
disposable income of the avg North American family. Similarly,
temporary energy price spikes (eg 2008 & 2011) cannot on their own contract the USA economy. Analysis
by the same model suggests that when rising
petroleum costs approach critically damaging magnitude, demand destruction
in the more vulnerable G-20 nations is already causing oil prices to
This issue and related price thresholds are discussed more fully in the
venue. That said, the
Pump model has found
excessively high gasoline costs do indeed cause temporary stress to the
domestic auto sector.
Vehicle Sales Barrier
charts have warned of definitive Oil/GDP & Gasoline/GDP ratios which when surpassed
adversely impact North American auto sector manufacturing and sales.
seen in the two graphs herein, new car & light truck sales plunged
deeply upon this
threshold being crossed in 1980, 1990 & 2008.
Recent minor gas price spikes induced lesser Light Vehicle Sales
setbacks in May 2011, Mar/2012 & Apr/2013.
During the Great Recession, volume declined
million unit annual rate to 9 mu/yr).
Similar surges above the LVSB in Spring 2012 & 2013 resulted in 0.5
& 0.6 mu/yr setbacks. Now that RAC ($97) has retreated well below the
LVSB, the auto sector should be enjoying a robust
rebound, except for the extraordinary fact pump prices have not
fallen in tandem and only in recent weeks have they
occasionally dipped below the
present $3.59/gal gasoline
LVSB threshold. As such, pump prices
have been exhibiting extremely high Crack Spread and Gross
Linked to GDP, the LVSB threshold is presently demarked by $3.59/gal and rises
about a penny per month. Today's Gas
forecast indicates gasoline should retreat below this level and set
up a robust sector rebound
this Summer ... one which with all other
factors aside should last 'til the decade end. But as the
discovered in April, a 2018 resumption of the gasoline/oil price
uptrend at a faster rate than GDP growth (6% vs 4%) will lead to a
permanent breach of the LVS
Barrier in 4Q24 ($4.11/gal).
An extremely low absorption rate of electric
vehicles in the USA means there is not likely enuf time to avert
devastating effects on the manufacturing sector which will at that
juncture be in the depths of an austerity-induced Severe Recession
(forecast by the
Trendlines Recession Indicator).
Light Vehicle Sales had been projected to be 17 mu/yr by 2026.
This described double-whammy could conceivably chop 4 million
units off that pace. Aside from
Trendliners, most other
policymakers, legislators, stakeholders and investors
are currently completely unprepared for this scenario. Time
has basically run out to have the
infrastructure in place by this juncture for the
transition away from gasoline/diesel powered cars and
light trucks in favour of natural gas, electric and fuel cell
Sales pace (million units/yr) plunges each time pump price breaches
the TRENDLines Light Vehicle Sales Barrier: March 2008, May
2011 & March 2012
WORST CASE SCENARIO
A black swan event occurs w/o warning. With
respect to gasoline prices, it would be related to a natural
disaster, a weather event or some geopolitical issue which drives up
oil prices. The Gas
Barrel Meter models
both suggest any extraordinary price spike
would be constrained by the same predictable Price Spike Ceiling which
firmly arrested the 2008 price run @ $4.11/gal ($129/barrel crude).
The PSC is based on the monthly avg and is presently
$4.59/gal ($157/barrel). The PSC represents a definitive Petroleum/GDP ratio where certain demand destruction feedbacks attain critical mass. As
happened in the Summer of 2008, Demand and Price are reversed as alternative
energies, substitution and conservation measures are pursued.
Because oil extraction costs are growing at a faster pace than GDP
(6% vs 4%), the Gas
model projects the PSC will be in play in 4Q25 and will hold
gasoline prices (and supply) at its level thru to its 2030 horizon.
REFINING VS IMPORTS
As mentioned, the Crack Spread is currently
$0.47/gal ($19.61/barrel). The post-Y2k Crack Spread (diff betw Wholesale
& Contract Crude) for Refiners has ranged between $1.03 &
$0.10 per gallon ($43 & $4/barrel). When the spread drops below
$o.48/gallon ($20/barrel), history shows Refiners prefer to produce
diesel from available crude and then import less expensive foreign
gasoline. This metric had fallen to a mere 10¢ in Dec/2011 and
the lack of domestic production (along with supply
issues) spurred gasoline to rise disproportionately from
oil 2012Q1. It is this general lack of profitability that
spawned the massive shuttering and sell-off of refinery & retail
facilities. Improvements in mileage performance has augmented
the closure trend.
Trendlines Research at no
time found merit in the rationalizations and musings in
Feb/2011 by cable news pundits warning of $5
to $7/gallon gasoline for the approaching driving season.
Most were merely repeat guestimates of the ilk heard
surrounding the July 2008 spike (eg Jeff Rubin). Some of those
silly Crude Price forecasts are saved for posterity in
my COPF chart. Look for more of this silliness
should an Iran-related spike present itself in the
coming weeks and months, but keep in mind the Gas
Pump's current Price Spike Ceiling when considering the mostly unfounded
Similarly, punditry and proposals by sector analysts James
Hamilton & Steven Kopits have been based on failed thesis.
Their bold claims high petroleum prices
caused ten of last dozen American Recessions are utter nonsense.
They seem to have forgotten correlation does not imply
causation. As mentioned above, the TRENDLines
models have found per capita
disposable income is much too high and the USA economy is far too
large to be contracted by these miniscule fuel costs. My analysis
reveals that just as
petroleum prices start to attain a danger area, demand destruction
in the more vulnerable G-20 nations causes oil prices to
retreat. Their repeated alarmism in Washington DC and across
the WWWeb that the USA and in fact world economy will
collapse when WTI rises above $86/barrel has been shown
to be among the worst of their failed predictions...
The GasBuddy chart provides higher resolution, but
uses WTI ... a (playground) metric which over the past
couple of years has been at times either $9/barrel higher or
$22/barrel lower than the USA refiner acquisition cost for
crude blends as measured by EIA and featured in all
Trendlines Research charts & discussion.
has assisted many stakeholders recognize that All Liquids
will enjoy an ever increasing pace for approx two decades, to be
followed by a very manageable Post Peak decline. With a return
to healthy Surplus Capacity, Marginal costs are irrelevant at this
time and thus assures a reasonable pricing regime. Knowledge
of these two factors allows policy makers to conduct their research
and due diligence and make long term decisions in a less hurried
If your firm/institution requires
written validation of a future price forecast in the 60-day to
40-year time frame,
feel free to contact our analyst,
(867.660.5566 in the Pacific time zone)