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Schork Oil Outlook: Driving Trends May be Indicator to Economic Recovery

Over the summer, we considered May’s Vehicle Miles Travelled (VMT) figure as an indicator for the state of the economy and gasoline demand. High VMT would imply increased economic activity and job-related travel. At the time, May’s figures were less than bullish, and we stated in the July 27th issue of The Schork Report:

“In real terms, annual VMT has been decreasing from a peak of 3.04 trillion (×1012) miles in November 2007 to 2.93 trillion in November 2008. So May’s 0.07% increase in VMT over May 2008 is less bad instead of good” July’s Vehicle Miles Travelled (VMT) figures were released last week, with total miles driven clocking in at 263.4 billion miles, up 2.3% from July 2008. That is a solid increase, but keep in mind, gasoline prices have decreased by 38% since last year. Further, July 2008’s VMT figure was 3.5% lower than July 2007. Therefore, this year’s “increase” was 1.3% below 2007 and 0.5% below the 03-07 timestep, thereby continuing that steady VMT decline.”

However, as with many of the coincident indicators today, the VMT is improving month by month. For instance, July’s 2.3% year-on-year increase is the largest we’ve seen for any month this year, in stark contrast to the 2.9% decrease in Jan 09 against Jan 08. Further, the annual cumulative miles travelled value is now commensurate to the same period last year, while May was down 0.8%.

Of course, seasonality plays a role. The months of July and August represent the peak of the driving season. Therefore, intuitively, if you had to guess which month would show the largest year-to-date comparison, July would be a pretty good place to start. Conversely, if you had to pick a month with poor demand, than January or February, when half the country’s roadways are covered in snow, ice, salt or potholes, is where we would first start looking.

Be that as it may, quantitatively, the 263.4 bn miles figure is 2.2bn less than the 265.6 bn miles predicted by our forecasts. But as the graph below shows, actual VMT figures are catching up to the projections – a 2.2bn shortfall seems reasonable considering June’s figures were 4.2bn less than forecast and May’s were 7.5 bn below seasonal expectations i.e. this year’s summer driving kicked in late, but at least it kicked.

GB_gasoline_VMT.jpg

The breakdown provides further insight to driving trends. Urban driving is considered to have a higher degree of demand inelasticity and is therefore a potent indicator for general economic health. For example, regardless of price, people will continue to drive to their jobs… assuming they are still employed.

Rural driving (incl. recreational driving) involves a greater amount of discretionary demand and is therefore more sensitive to price. For example, this recession introduced the neologism… stay-cation, into the everyday discourse of Americans. In July, rural driving was higher for the fourth straight month, up 3.9% from last year. That’s the biggest year-on-year increase we’ve seen since 2007. Meanwhile urban driving was only up 1.3% and the first half of 2009 is still 0.8% lower than 2008. Ostentatiously that lends credence to an employment lag from the nascent recovery: consumer confidence is returning, as evidenced by the increase in rural driving, but the jobs will continue to lag.

To wit, our friend Alan Lammey at Natural Gas Week, pointed out to us that the unemployment benefits exhaustion rate, or the number of people who have used up their benefits, and will no longer be receiving unemployment checks, hit an all time high of 52.40% for August. Perhaps this explains the current bill in the House to extend, again, emergency unemployment benefits by 13 more weeks.

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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.