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Schork Oil Outlook: US Consumer Is Still in a Pickle

Energy prices were mixed on Friday… liquids in London and New York ended the week on firm ground, while the ground fell out, again, from the natural gas market. In other words, the differential between oil and gas moved out, again.

One of these days’ gas and oil will converge. However, we are just not willing to bet on it.

In a follow up to the prior week’s reported strong increase in home resales, market bulls were rewarded last week with the first uptick in three years in homes values (CaseShiller) and a large increase in new home sales. On the other hand, consumer spending, which accounts for more than two-thirds of the U.S. economy, rose by 0.2% in July after rising by 0.1% in June.

According to the Bureau of Economic Analysis (BEA), purchases of motor vehicles and parts related to the federal CARS program, i.e. “cash for clunkers”, accounted for the increase in July and for most of the increase in June. Furthermore, personal income was unchanged in July after falling 1.1% in June. The countercyclical run-up in gasoline this month is not helping. Whereas in August 2008 the bubble in energy had already popped, this August the bubble reflated.

The good news is that the latest numbers from the BEA show a 2.2% month-on-month decrease in consumer spending on gasoline and other energy goods in July; the gasoline PCE fell to $301.5 billion. That comes out to a savings of $6.7 billion for consumers. However, in August gasoline prices at the pump have moved back up to the levels seen in June. In other words, that $6.7 billion “savings” in July evaporated in August. On one hand, here at The Schork Report we expect gasoline spending as a percentage of total consumption to come in around 3.1%. That is better than the 4.6% ratio from August 2008, but with incomes not growing this year, it is still going to cause some pain.

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Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.