Last Thursday, the U.S. Census Bureau released what looked like a bearish advanced retail sales number.
Instead of continuing in the vein of November’s 1.8 percent gain, or growing 0.5 percent as analysts had expected, December’s retail sales dropped 0.3 percent to $352,985 million. This report came on the heels of the prior week’s greater-than-anticipated jobs number, thus raising concern regarding the sustainability of the incipient economic recovery.
However, energy spending may be in better shape than those numbers suggest. In fact, we believe the numbers are positively bullish, and the market seems to agree: Last week, the spot RBOB crack (absolute value) on the Nymex finished at a 52-week high, $7.91 a barrel.
Despite lower prices at the pump, gasoline station receipts actually increased in December.
As the Chart of the Day in Tuesday’s issue of shows, the normal relationship between receipts and prices began to break down in October. Gasoline station receipts began rising while prices declined. Consider that total gasoline station receipts rose 1.04 percent month on month in December, despite prices at the pump dropping 0.1 percent.
More tellingly, prices are down 2.4 percent since October—but receipts are up 10.7 percent over the same period. Normally we would expect every one cent decrease at the pump to lead to an 82 million dollar decrease in gasoline station receipts. That would mean we should have seen a 0.2 percent decrease since October instead of the 10.7 percent gain we did see.
The logical assumption is that consumers are responding disproportionately well to lower prices. This could be due to consumers choosing to drive instead of fly for the holidays, which could be construed as bearish (for the economy), due to its temporary nature and cost-cutting nature.
Alternatively, it could be due to increased rural driving as consumer confidence rises, which would be mildly bullish given how quickly confidence varies. Or it could be due to increased urban driving, as consumers return to jobs and stores transfer greater amounts of inventories, which would be very bullish.
In the short term, the advance retail sales numbers alone will probably not be enough for a reversal. But given the sustained 3-month upward trend, they could portend a strong recovery in consumer demand, which, one would hope, should lead to stronger prices for the RBOB, relative to WTI — rare green shoots in an otherwise shaky economy.
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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.