The oil products complex was quiet yesterday on the Nymex in advance of today’s DOE inventory data, but one contract showed consistent strength relative to the others — RBOB gasoline. Its highs were higher and its low prints were less low in relative terms due to surprisingly strong vehicle miles travelled data.
As today’s chart of the day in this morning’s Schork Reportshows, total vehicle miles travelled (VMT) for April came to 255.9 billion vehicle miles, 1.2% above last year and 2.1% above the 2004-08 average, in fact it is the highest level ever recorded for April.
Surprisingly, prices at the pump and Nymex RBOB prices peaked in April, suggesting that demand is becoming more inelastic with regards to price. This is bullish in the big picture, with some caveats when we consider the switch from gasoline to diesel.
In demand terms, the increase is bullish because the regression between prices and VMT (taking in to account seasonal factors) should have resulted in a 0.05% drop in VMT in April given the rise in prices at the pump from $2.851 to $2.901.
The increase can be explained partly by the breakdown between rural (discretionary driving for pleasure) and urban (commuting and commerce) driving. Urban driving grew for the second consecutive month for a cumulative gain of 16.87% since the start of the year — i.e. more people have jobs to get to, or goods to deliver, and must do so regardless of prices at the pump.
In a similar vein, rural driving is up 22.84% since the start of the year as consumer confidence returns. Although these gains are larger than those seen by urban miles, they are also more volatile, and thus slightly less important in gauging future health.
On the other hand, the gains are muted when compared to March. For instance, rural driving was 3.04% higher year-on-year in March, but only 1.79% higher in April. Similarly, the y-o-y surplus in urban miles dropped from 1.89% to 0.89%. This may come as a surprise given that total gasoline supplied (according to the DOE) in March 2010 was 0.71% below last year, while April’s value was 1.43% higher.
This disparity is explained somewhat when we consider diesel fuel. According to the DOE, demand for low sulfur diesel fell 1.26% between March and April as diesel prices at the pump rose 4.85%, several times the 1.75% increase seen in gasoline prices.
Even after the sell-off, RBOB prices fell in May by 4.03%, while diesel prices only fell 3.01%. The bottom line as far as The Schork Reportis concerned, consumers and producers appear to be healthier and returning to the pump, but high diesel prices are hampering demand.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.