In this light, gasoline spending as a percentage of overall consumption it back up to 3%. That is far better than a year ago when gasoline accounted for around 4½% of total consumption. But a year ago gasoline consumption was tanking. In fact, a long-term upward trend in miles traveled or VMT (per the Federal Highway Administration) decoupled and plateaued in late 2005, i.e. after shortages related to hurricanes Katrina and Rita forced a sharp spike in price.
The trend in VMT turned negative in late 2007 (the start of the recession) when gasoline consumption (PCE) was around 4.2% of the total and the unemployment rate was 4.7%. Today gasoline PCE is back to pre Katrina levels (see U.S. Employment Rate vs. Consumer Spending Gasoline graph in today’s issue of The Schork Report). That’s a good thing. But the unemployment rate has doubled. That’s a bad thing. In other words, we feel the consumer rubber band or rather retail gasoline prices, in the current economic environment have been stretched about as far as they can go.
On CNBC.com now: Slideshow: Top Ten Gas-Sipping Cars
Thus, crude oil prices cannot go much higher than recent highs without causing untoward pressure to consumer spending in the fourth quarter. Should that happen, then the current glut in distillate supplies go, for both heating oil and diesel fuels, will certainly hold well into 2010, regardless of how cold it gets this winter. After all, without the consumer you will not see a material uptick in the denominator of the aforementioned inventory to shipments ratio. Therefore, whatever nascent demand there is to move inventory from the factory floor space, there is plenty of diesel on hand to move it.
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.