Two days ago the Ceridian-UCLA Pulse of Commerce Index came out with a rather troubling outlook. For those new to the index, it is published by the UCLA Anderson School of Management and Charles River Associates and tracks fuel consumption data for over-the-road trucking.
Effectively, a strong index should suggest that truckers are fuelling up with diesel more frequently due to high demand for freight transport and raw material processing. This would, in turn, justify why the NYMEX heating oil crack (illustrated in today’s issue of The Schork Report) has been tracking above the ten year average all summer despite distillate stock standing at 27 year highs.
Except that it doesn’t.
In fact, the seasonally adjusted index fell 1.0% in August, causing the three month moving average to dip for the first time since June 2009. According to Ceridian’s report,
the index tracks closely with industrial production and GDP, and the weak figure is “currently consistent with a GDP growth number for the current quarter in the disappointing range of 1.5-2.5%,” and has also “reduced prospects for growth in industrial production in August from 0.5% to 0.1%, which is essentially no growth”.
So why is the crack higher, and what implications does the weak index have? In terms of the general economy, we have our doubts as to whether the index is as valid as it was even two years ago. Since the start of the year, jobs in the general freight trucking sector have risen by 0.84%. Meanwhile, jobs in rail freight have risen by 2.86%, and water transport by 1.43%. Given the increasing price of diesel, and the vast sums of federal money being thrown at the rail industry, we may be seeing a marginal shift away from trucking for freight and towards rail and water.
As for the HO crack, analysts at The Schork Reportbelieve this is a function of seasonality. In August, receipts have a tendency to rise by 5.3%. In 2010, they rose by 4.3% ergo a 1% ‘seasonally adjusted’ drop. However, no one is denying that the recovery is slower than expected. Thus even if we are not hitting 2007 levels of growth, the bulls may consider a 4.3% increase satisfying enough to bid HO higher.
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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.