Calling yesterday’s (Thursday's) GDP data discouraging would be an understatement. After the UK matched analyst expectations of GDP growth on Wednesday, it was especially troubling yesterday to see domestic GDP rise by 1.8% as compared to analyst expectations of 2.2%.
The breakdown for
As we have mentioned previously, domestic demand for crude oil has likely peaked. The bulls could call this overly reactionary, after all expenditure on motor vehicles rose 2.3% on the quarter, the fourth consecutive increase and its highest point since Q1 2008.
However, in 2008 people were buying Hummers, with mileage around the 10mpg mark. In 2010, GM’s attempts to sell the Hummer brand stalled and production was shut down. In 2011, Toyota reported that over a million Priuses had been sold in the U.S. with a mpg closer to 50.
To take an extreme example, the average American drives around 12K miles per year. If they switch from a Hummer to a Prius, their consumption drops from 1200 gallons per year, to just 240. Assuming that even half of the Priuses sold was due to drivers making an equivalent switch from a gas guzzler, that translates to 120 million fewer gallons consumed.
With increased investment in rail infrastructure, and an ‘eco-friendly’ shift to public transportation, the only reason for demand to outpace supply in the long term will be the emerging markets.
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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.