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 the Gas Pump 

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  [New!]  monthly update of TRENDLines Gas Pump ~ Price Forecast, Components & Crack Spread for USA Gasoline
   
  see also:  TRENDLines Barrel Meter
  see also:  TRENDLines Barrel Meter Compared to Recognized  Long-Term Crude Oil Price Forecasts
    

 

  

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 USA Gasoline Price/gallon Components

Trendlines Research

2013  May 2014 June 2030 Dec

  Price Spike Ceiling

$4.60 $4.69 $4.86

  Light Vehicle Sales Barrier

$3.59 $3.68  $4.12

  Retail Pump Price

$3.68 $3.35 target $4.86 target
Wholesale $2.88  
Taxes $ .43
Profit $ .37
Metrics:  
Contract Crude

 + Gross Margin (Retail less Crude)

$2.36

$1.32      $3.68

Margin (Retail less Wholesale) $ .80
Crack Spread $ .52 ($21.70/barrel)  

clik or scroll down to view guidance from one & three years ago:  "June 2012" & "Apr/2010" charts

   Auto Sector Poised for 2024 Collapse

   

Sept 24 2013 delayed FreeVenue public release of June 24th MemberVenue guidance ~ All-grades retail gasoline averaged $3.68/gal in May ... up 4 from the previous month.  The 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 ($63 WTI) and 2.71/gal gasoline by 1Q18.  The positive effect on car sales will already be evident this Summer.

Unfortunately, a resumption of the secular price uptrend in 2018 will drive pump prices to permanently breach the Light Vehicle Sales Barrier in 2024 upon surpassing $4.16/gal.  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.

 PRICE COMPONENTS   As seen in the table above, last month's avg Retail Price of $3.68 is comprised of $2.88/gal Wholesale refinery product & $o.80 Margin.  In turn, Margin is made up of $o.43 Taxes & $o.37 Profit.  Historically, this compares to 54 Margin, 42 Taxes & 13 Profit back in Y2k.  Last month's Crack Spread (diff betw wholesale & contract crude) was $0.52/gal ($21.70/barrel).

The raw crude component ($2.36/gal) continues to be volatile, particularly its Stress Premium price subcomponent (comprised of geopolitical issues, weather events and disasters).  Barrel Meter analysis reveals this factor added 31/gal in May ... up a tad but still much better down than 66 at the height of the Libya crisis (April 2011).  Debasement of the USDollar currently adds 45/gal to pump prices, down from 58 two yeas ago during the Obama Budget fiasco.  General Speculation/Hedging Activity added 15/gal to last month's gas price.  The tightness of Surplus Capacity enabling the Iran sanctions added 41.  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   The Trendlines Recession Indicator calculates Feb/2013 was final month where rising petroleum costs presented a headwind to the American economy.  At its height in April 2011 (Libya crisis), this factor trimmed 1.60% off the USA's GDP growth rate, just nudging out the former record (1.55%) set back in June 2008.  The decline in oil price over the past two years ($14) has so improved the situation where this factor actually provided a 0.4% tailwind to economic activity in April. but that is dissipating with renewed crude spiking.

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 retreat.

This issue and related price thresholds are discussed more fully in the Barrel Meter venue.  That said, the  Gas Pump model has found excessively high gasoline costs do indeed cause temporary stress to the domestic auto sector.

    Light Vehicle Sales Barrier   Since Nov/2009, both the Barrel Meter & Gas Pump charts have warned of definitive Oil/GDP & Gasoline/GDP ratios which when surpassed adversely impact North American auto sector manufacturing and sales.  As 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 44% (16 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 $117 oil 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 Margin.

Linked to GDP, the LVSB threshold rises about a penny per month.  Today's Gas Pump 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 ten full years.  Unfortunateley, as the Barrel Meter discovered in April 2013, the resumption of the gasoline/oil price secular uptrend at a faster rate than GDP growth (6% vs 4%) will eventually lead to a permanent breach of the LVS Barrier in 2024 when surpassing $4.16/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 powered fleets.

 

 

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 Pump & 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 $4.60/gal ($158/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 Pump model projects the PSC will be in play in 4Q25 and act as a ceiling to gasoline prices (and supply) thru to its 2030 horizon.

 DOMESTIC REFINING VS IMPORTS   As mentioned, the Crack Spread is currently $0.52/gal ($21.70/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.

 SILLY FORECASTING by PUNDITS   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 rhetoric...

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 since 2008...

Caveat:  albeit based on best efforts interpretation of the Barrel Meter  projections, the Gas Pump 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 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.

TrendLines Research 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 environment.

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, Freddy Hutter (867.660.5566 in the Pacific time zone)

guidance from TRENDLines a year ago:

<<< June 25 2012 chart

Last year the Gas Pump model was forecasting a retail gasoline plunge from $3.77/gal to $2.42 by May 2013 and revealed the setback in USA Light Vehicle Sales in early 2012 was primarily due to a continued price breach of the LVS Barrier.  Thus far, pump price has only seen a low of $3.38 on that journey...

original guidance alert over two years ago of the upcoming 2011 spike:

<<< April 8 2010 chart

Two years ago the Gas 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!

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 the Gas Pump

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( 1989-2013)

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3 ways to join the MemberVenue:

$25/month Annual Membership  or  $35/month Quarterly  Membership or  $50 Project Access-fee

password reminder

About    Contact

Media Access

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Let's keep the site ad free ... please consider subscribing to the MemberVenue or a donation to assist my research!

FreeVenue:   PeakOil   Economics   ClimateChange   Elections

Beware ... the Lunatic Fringe

MemberVenue:   PeakOil   Economics   ClimateChange   Elections

  Canada Flag
Trendlines Research  ...  Providing macro-economic charts & guidance for Legislators, Policymakers, Investors & Stakeholders
long-term multi-disciplinary perspectives by Freddy Hutter since 1989
send email to charts@Trendlines.ca with questions, comments or navigation corrections with respect to this web site[Under Construction]
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Last modified: November 03, 2013