Energy prices were strong yesterday — and how! The liquids popped after MEND* cancelled its ceasefire on Nigerian oil production facilities.
Keep in mind that MEND can do, and has done, serious damage in the past. Meanwhile natural gas prices rose after a snowy weekend in key market areas. As far as today goes the dollar’s path could build or wipe out yesterday’s gains.
*(Note: MEND = Movement for the Emancipation of the Niger Delta, one of the largest militant groups in the Niger Delta region of Nigeria.)
In the January 20 issue of The Schork Report, we previewed personal gasoline consumption expenditures. At the time, we said, “The bottom line is that we believe much of the recovery in PCE on gasoline and energy goods has already taken place. Thus, the next BEA release should be approached with caution. However, this may not prevent the bulls from running prices beforehand.”
Crude, Natural Gas, RBOB Futures Now
On Friday morning, electronic trading had pushed natural gas prices 2.6% above Thursday’s close before the pit even opened. When the PCE numbers were released at 8:30am ET, which reported a 2.0% YoY rise in total expenditure instead of the 1.8% predicted by analysts, crude prices kneejerked 1.2% higher within half an hour.
By the end of Friday, natty and crude dropped to their lowest closing values since December 8 and 21, respectively.
Part of the drop in natural gas came from the EIA’s monthly reports that signaled high production, which The Schork Report discussed yesterday, but why did ostensibly bullish PCE numbers, 0.2% higher than expected, push prices lower?
Consider the expenditure on gasoline, which rose 16% from Q2 to Q3 2009 while prices at the pump dropped 5%. That’s bullish — as the scatter plot in today’s issue of TSR illustrates, lower prices at the pump should lead to lower expenditure. Instead, for Q3 2009, consumers began spending disproportionately well.
The latest release seems to continue in this bullish vein, stating that expenditure rose 9.4% in Q4 to $354.9 billion. However, retail prices rose 4.23% from 2.55 to 2.66 over the same period. So we got a smaller increase despite the fact that prices rose.
Today’s issue of TSR demonstrates consumer behavior in response to prices at the pump. The first quarter of 2009 was understandably weak for consumer confidence and retail prices. The second quarter saw prices increase 29% from 2.097 to 2.695, but consumer expenditure barely budged.
This lack of demand pushed prices 5% lower for the third quarter. By this time, the press was touting an economic recovery and instead of dropping 4.93% as forecast, consumer expenditure for Q3 rose 16.11%.