I'm pleased to tell TRENDLiners this past Winter 86% of
visitors were International (a new record 125 nations: most from USA,
France, Germany, Spain, Saudi Arabia, Palestine, Italy &
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Members & Media
with query/comments are welcome to
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posted to the FreeVenue in the last 30 days.
FreeVenue charts are posted 90-days after the
guidance release @ the MemberVenue
April 26 2013 delayed
FreeVenue public release of Jan 26th MemberVenue guidance ~
All-grades retail gasoline averaged $3.38/gal in December ... down
14˘ from the previous monthly avg. Both the
models suggest crude oil & gasoline finally re-achieved price equilibrium in
July 2012 after over three years of frothy exuberance. With an
environment of improving crude fundamentals, pump price is projected to
slide to $2.89/gal by Feb/2015 ... then resume its secular uptrend.
After a brief surge in Q1, gasoline price should settle back well below the Light Vehicle Sales
Barrier and in so doing would present the opportunity for a robust rebound in auto
manufacturing/sales over the next year and extinguish the last
vestiges of this particular headwind against the
As seen in the table above, last month's avg Retail Price of $3.38/gal
is comprised of $2.67 Wholesale refinery product & $o.71 Margin.
In turn, Margin is made up of $o.41 Taxes & $o.30 Profit.
This compares to 54˘
Taxes & 13˘
Profit way back
(diff betw wholesale & contract crude) was
$0.48/gal ($19.99/barrel) in December.
The raw crude
component ($2.20/gal) continues to be volatile, particularly its
Stress Premium price subcomponent (comprised of geopolitical issues, weather
analysis reveals this factor added 17˘/gal in December ... down from 72˘ at the
height of the MENA/Libya episode. Debasement of the USDollar currently adds
40˘/gal to pump prices, down from 58˘two yeas ago. The tightness of Surplus Capacity
enabling the Iran
sanctions added 35˘ & general Speculation/Hedging activity 14˘/gal
to last month's gas prices.
EFFECT on USA ECONOMY
Trendlines Recession Indicator
calculates the effects of residual high petroleum costs over recent
Quarters were finally exhausted in December, shaving o.2% off the USA's GDP growth pace. The record for
this dampening factor (-1.60%) was set during the
Libya-MENA event (April 2011), just nudging out the
(-1.55%) set back in June 2008.
Punditry by failed sector analysts James
Hamilton & Steven Kopits with bold claims that high petroleum prices have
caused ten of last dozen American Recessions are utter nonsense. Per capita
disposable income is much too high and the USA economy is far too
large to be contracted by these miniscule fuel costs. Analysis
by my models reveal 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. That said, the
Pump has found
excessively high gasoline costs can cause stress in the
domestic auto sector.
Vehicle Sales Barrier
When Pump Price surged above
$3.44/gallon in Jan/2012, it breached the Gas
Light Vehicle Sales Barrier for the fifth time in four decades, resulting in yet another
truncation of the national sales pace.
has warned of a definitive
Gasoline/GDP ratio which when surpassed serves to
adversely impact auto sector manufacturing and sales.
seen in the two charts herein, New Car Sales plunged when this same
threshold was crossed in 1980, 1990, 2008, 2011 &
During the Great Recession, volume declined from a 16
million unit annual rate to 9 mu/yr. With softer
pump prices, sales had climbed back to 12.9 mu/yr by Apr/2011, but
then slipped back to an 11.7 mu/yr pace when consumers were once
again confronted with high gasoline/diesel prices related to the
Libya production cuts.
Price dipped back below the LVSB in Dec/2011, it was no surprise at all to
TRENDLiners to watch sales surge back to a 14.4 mu/yr pace.
But then right on queue, there was another setback in auto sales
this Spring with the LVSB transgression.
Pump Price has significantly
exceeded the LVSB since Jan/2012. Sales declined from a 13.9-mu/yr
pace by May. Dec/2012 marks the first month pump price has
dipped below the LVSB threshold. The model suggests the auto sector
will again robustly grow the sales pace once pump prices
make sufficient retreat
below the current LVSB ($3.47/gal).
At this time, the
Pump model is projecting gasoline price will decline
well below the LVSB and foresees no future
transgressions. This bodes well for the auto
With softer pump prices, sales had climbed back to 12.9
mu/yr by Apr/2011, but then slipped back to an 11.7
mu/yr pace when consumers were once again confronted
with high gasoline/diesel prices related to the Libya
production cuts. Should a
permanent breach be revealed in the future, it
would be extremely necessary for
policymakers, legislators and stakeholders to make
infrastructure is in place by such a juncture for the
transition away from gasoline/diesel fleets.
Sales pace (million units/yr) plunges each time pump price breaches
the TRENDLines Light Vehicle Sales Barrier: March 2008, March
2011 & January 2012
WORST CASE SCENARIO
Monitoring of the Iran nuclear proliferation issue and
related economic sanctions continues. A significant albeit futile Iranian retaliation or any other black swan event for that matter could drive USA contract crude
(monthly avg) even higher but
Barrel Meter models
both predict any extraordinary price spike
would be constrained by the same Price Spike Ceiling which
firmly arrested the 2008 price run @ $4.11/gal ($129/barrel crude).
The upper limit is presently
$4.52/gal ($154/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.
REFINING VS IMPORTS
As mentioned, the Crack Spread is currently
$0.48/gal ($19.99/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 last Winter. 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
($4.54/gal) when considering the mostly unfounded
based on best efforts interpretation of the Barrel Meter
forecasts are subject to unexpected geopolitical issues, weather related
events & disaster....
The GasBuddy chart provides higher resolution, but
uses WTI ... a (playground) metric which over the past 13
months 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)
guidance from TRENDLines a year ago:
Jan 23 2012
year the Gas
Pump model was forecasting retail gasoline would plunge from $3.30
to $2.85/gallon. It revealed the 2011 setback in USA Light Vehicle Sales was
again due to a price
breach of the LVS Barrier. As seen in today's chart, the
proposed plunge in gasoline price was stymied by Iran's
boasts to blockade Hormuz...
original guidance alert over two years ago of the upcoming 2011 spike:
<<< April 8
Two years ago the
Pump model was forecasting gasoline to rocket from $2.77/gal to $4.40, then
retreat to $1.48 and suggests the re-collapse of New Car Sales in
2010Q3 should pump prices breach the Light Vehicle Sales Barrier of
$3.37/gal. In fact, gas rose to $3.96 & auto sales fell
from 13.2 mil units/yr in March/2011 to an 11.5 mu/yr pace by June!
Anxiety over plunging
prices may well spark an OPEC intervention but the effect of such an
dissipate in mere days or weeks.
Other factors driving US pump prices higher include the importing of
more expensive gasoline due to a lengthy period of low WTI crack
spreads, ongoing Eastern seaboard refinery shuttering and the
inability to freely transfer gasoline excesses across State borders
to needy regions due to incompatible boutique gas additives.
The USA continues to address the Iran nuclear proliferation issue on
two fronts: multilateral negotiations and multi-nation
co-operation with economic sanctions. Should these measures
fail to bring about a timely agreement, TRENDLines has been assuming
(for price projection purposes) American celebrity President Obama
has offered to conduct a joint strike against Iran upon Israel
assurance to postpone the mission 'til post-Election.
Upon breakdown of the talks or growing Israeli dissatisfaction with
Obama's apparent desire to cut a deficient agreement in a moment of
Electioneering zeal, trader anticipation of the fighter sorties
could lead to a short spike within the July-Feb time frame as high
as $4.10/gal. A significant albeit futile Iranian retaliation
(or any other black swan event) could take the monthly avg
for USA contract crude even higher but
Barrel Meter models
both reveal any extraordinary price spike
would be constrained by the same Price Spike Ceiling which firmly arrested
the 2008 price run @ $4.11/gal ($129/barrel crude).
When the difference between the spot Wholesale gasoline
price less the Crude component is less than 48˘/gal, refineries find
it more profitable to produce diesel rather than gasoline.
This prompted the importation of the usually more
economical gasoline from Europe, but (geopolitical fear premium)
inflated Brent Crude saw American consumers seeking very expensive
fuel. With May's Crack Spread back to 52˘, domestic production
should see a boost. There are also some supply chain issues
regarding shuttered US refineries and a lack of US flagged tankers
to move Gulf product to the Eastern seaboard. Foreign
registered ships are forbidden from domestic transfers.
The primary forcing for the recent multi-month price run was clearly
Debasement of the USDollar amid heightened perception by the
international investment community that Congress & the President
were unwilling to address their Structural Deficits and mounting
Sovereign Debt (see
analysis). Mismanagement of Federal Budgeting since Barack
Hussein Obama's inauguration adds 38˘/gal to today's pump price.
MENA geopolitical unrest added another 24˘/gal but was totally
extinguished upon NATO engagement.
Based on activity by the int'l investment community, original
projections had assumed the current spike event would coincide with
an inevitable bond vigilante crisis (2014) as identified by our
it appeared the date
would be associated with the Presidential Election in November 2012.
Then the Primaries. But it seems there
has been another acceleration via the "Tea Party" strategy to use
the opportunity of negotiations surrounding the raising of the Debt
Ceiling to bring this issue to a head.
Their original intent
was to stand firm and demand expenditure cuts in the magnitude of
"trillions of dollars" instead of billions. Such an endeavour
would facilitate a speedy correction to the USDollar back to early
2009 levels and subsequently a reversal of crude oil and gasoline
pump prices. To quantify this analysis, I am certain there
would be an eventual $4/barrel decline for every $1 trillion in
spending cuts and/or new tax revenues.
(2011/2/9) ~ During 2005 &
2006, gasoline touched $3/gallon and fell back. It
didn't in 2007Q4 and
the breach of $3.19/gallon ($86/barrel crude) helped push the
American economy into a Technical Recession. It is little known that this price event contributed to the collapse of North
American Light Vehicle Sales (see FRB chart below) and car/van/truck
units/parts imports from Canada.
It should be of grave
concern that the same Pump-Price/GDP ratio underlying that episode
is being re-approached. The failure of Congress & successive
Administrations to address America's structural deficits & mounting
national debt is troubling to the global investment community
(especially bond vigilantes) and is responsible for the USDollar's
secular decline since January 2002.
illustrates this situation's adverse effect on oil price
after April 2004. As shown in the
component table, US$ Debasement was the largest
forcing ($28) among component fundamentals during the $94/barrel
price spike (2005-2008). As the Dollar falls, crude oil
pricing rises ... and this will continue 'til the Structural
Deficits are dealt with.
Our forecast of an imminent auto
sector downturn could be a major factor in relapsing the USA &
Canadian economies back into new Recessions. It is little
known that since 2004 more light vehicles/parts have been
manufactured /assembled in Ontario than Michigan. This present
danger is tracked at the
Trendlines Recession Indicator.