Gasoline Usage in US



There is already plenty of chatter about the price of gasoline rising to $5 a gallon this summer. That may be coming from speculators talking up their positions. The spot-month RBOB gasoline futures contract has rallied 30 cents last week, pushing to price levels not seen since the 2008 spike. That’s even though the latest weekly EIA stock numbers for gasoline came 13.3 mb above the five-year average and 7.1 mb above last year at this time. Energy markets are soaring due to an inflow of noncommercial money into the energy futures pits. So far, the geopolitical situation favors their bullish bet. So does the calendar: The summer driving season is only a few months ahead. Wars have a tendency to start during the summer in the Middle East.



The pump price of gasoline in the US rose to $3.17 a gallon during the week of February 23. It is up 14 cents since the end of last year and 54 cents from a year ago. Americans used 9.1mbd of gasoline, on average, over the past 52 weeks. There are 42 gallons in a barrel. So Americans used 382.2 million gallons per day, on average, or 143.3 billion gallons in total over the past year. That means a one dollar increase in the price of gasoline takes almost $150 billion out of consumers’ purchasing power.

Global Oil Bill

The global oil bill soared to a record $4,252bn (annualized) during June 2008. It then plunged to $1,256bn during December 2008. That drop of $2,996bn was unprecedented and undoubtedly was one of the reasons why the global economy recovered so quickly over the past two years. The oil bill rebounded 149% back to $3,125bn during January 2011 from the 2009 trough. The good news is that global oil usage has increased nearly 3mbd over this period, reflecting the recovery in global economic activity. The 190% increase in the price of oil over this period also reflects the recovery, but it is also cutting into consumers’ purchasing power. The recent spike in the oil price is more troubling since it reflects possible supply disruptions. We update this chart regularly for subscribers in Analyst's Handbook: Energy.

 



S&P 500 Forward Earnings

Forward earnings rose again in February to a 31-month high after falling for nine straight months through May 2009. It rose 1.2% m/m in December and is just 4.6% below the record high in October 2007. Consensus annual earnings for 2011 and 2012 rose in February. Analysts expect earnings to rise 14.0% in 2011 and 14.1% in 2012 after surging 40.3% in 2010. We update this chart regularly for subscribers in Earnings Month (with Squiggles).

The forward P/E for the S&P 500 rose to a 10-month high of 13.5 in February from 13.1 in January. It is up from an 18-month low of 12.0 in August.

Gasoline Price & Leading Indicators

The price of gasoline isn’t one of the ten components of the Index of Leading Economic Indicators (LEI) in the US. Nor is it included in the LEIs of the other major economies around the world. However, maybe it should be. That’s because rapidly rising gasoline prices led or coincided with all six recessions since 1973. It might be different this time because Fed policy is likely to remain stimulative even if higher gasoline prices boost the headline CPI inflation rate. The latest batch of LEIs suggests that the global economy has plenty of forward momentum for the first half of 2011. If gasoline prices continue to rise along with crude oil prices in coming weeks, then the outlook for global economic growth during the second half of the year is bound to be reflected in weaker LEIs by mid-year.

According to the Philly Fed’s monthly survey, the region’s manufacturing sector continues to expand at a fast pace. The current activity index increased for the fifth time in six months, climbing from -5.6 in August to +35.9 this month, the best reading since January 2004. The new orders index was little changed at 23.7 in February. The shipments index rose for the fifth straight month, jumping 21.8 points in February. The employment index increased for the second straight month from 4.3 to 23.5, the highest since April 1973. The ISM composite index is highly correlated with the 3-ma in the Philly Fed current activity index, which suggests robust manufacturing activity at the national level. We update these charts regularly for subscribers in US Business Surveys.

Crude Oil

My investment strategy recommendations continue to overweight the beneficiaries of the global boom. However, if the price of oil spikes to $150 a barrel over the next few months as a result of turmoil in the Middle East, all bets are off. Brent closed at $104.21 on Wednesday, the highest since September 5, 2008. It is up from a 2010 low of $69.19.

I still expect that OPEC nations will pump more oil to avert a spike in oil prices. It is in their interest to do what they can to reduce global instability caused by higher fuel prices. The only problem is that there is mounting political instability in OPEC oil producers such as Algeria, Iraq, Iran, Libya, and Bahrain.