The Guest Blog

Schork Oil Outlook: They Don't Make Bullish Stories Like They Used To

Stephen Schork, Editor, The Schork Report

ENERGY PRICES WERE WEAK ON TUESDAY… the entire complex plunged to end the quarter. We would like to say this is the start of the long anticipated correction, but we will wait until next week, after we return from the long holiday weekend before was pass judgment. As far as today’s DOE report goes, the crowd is expecting a net build of 2.5 MMbbls in the major products and a 2.0 MMbbl draw in crude oil.

Meantime, spot NYMEX crude oil ended the second quarter at $69.89 a barrel, up 41% since the end of March. That is the largest quarter-on-quarter percentage gain since September 1990. Hmm… September 1990 you say. What was the story back then? Oh yeah… Saddam’s annexation of Kuwait.

What’s today’s story? Uh… less bad is good. They obviously do not make bullish stories like they used to. But, then again, crude oil wasn’t an inflation hedge in 1990.

As noted in last week, demand for petroleum products in the aggregate is flatlining. The net amount of products supplied to the market fell below 18 MMbbl/d for the second time in the last four reports and therefore, for only the second time since the week following 9/11. We have no doubt the run-up in fuel costs in the second quarter thwarted incipient consumer demand… not to mention yesterday’s Consumer Confidencenumber.

Gasoline at the pump averaged $1.895 (nominal) in the first quarter. That was an 18 quarter low. As such, according to numbers from the Bureau of Economic Analysis (BEA), personal consumption expenditures (PCE) on gasoline (seasonally adjusted) were $243.98 billion. That was below the $393.5 billion gasoline PCE for the corresponding timestep from a year ago and well below the third quarter 2008 peak when gasoline averaged $3.897 and the PCE spiked to $432.7 billion.

However, this year retail gasoline prices jumped around 24% in the second quarter to around $2.30 a gallon. Therefore, that will probably push the gasoline PCE towards $300 billion. That’s a lot better than last year, but a lot worse than the start of the year.

In other words, the “tax break” from lower gasoline prices enjoyed by U.S. consumers in the first quarter is fast evaporating. In this vein, spending on gasoline as a percentage of overall PCE is at the lowest level since the start of the decade. From December through May, gasoline’s share of the PCE ranged from a low of 2.2% in December to 2.6% in February. In May, for which the latest data is available, gasoline was 2.4% of the PCE (see

As such, with housing prices (see

yesterday’s S&P/ CaseShiller report

) and jobs still reeling, discretionary spending on gasoline is waning.


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