And the Hits Just Keep On Coming

From Business Week:

AAA's Daily Fuel Gauge Report shows that motorists nationwide paid an average of $3.11 per gallon of gasoline on Nov. 14, up from $2.75 a gallon a month ago. Guy Caruso, head of the Energy Information Administration, an arm of the U.S. Energy Dept., warned that gasoline prices, while high, don't yet fully reflect the price of crude oil, which is trading around $94 per barrel. On Monday, the U.S. Energy Dept. warned prices could rise another 20¢ a gallon over the next two to three weeks if refiners pass along the increase in crude oil prices.

Isn't that just wonderful news.

Gas Prices and Holiday Spending

From the WSJ:

Gasoline has trailed oil's rise to nearly $100 a barrel, but fuel prices now look poised to take off.

Oil climbed $2.72 to $96.70 a barrel in New York Mercantile Exchange trading, bringing it closer to an inflation-adjusted high of $101.70 reached in April 1980. The sharp rise and an extended period of high prices has sent heating oil to new highs. (Please see related article.)

Gasoline is now expected to follow, potentially taking money out of the pockets of consumers at a time of weakening growth in consumer spending.

The average price of regular gasoline was $3.02 a gallon, according to AAA, formerly the American Automobile Association. That was up from $2.77 last month and from $2.20 a gallon a year ago. "Unfortunately between now and the end of the year gasoline prices will continue to rise if oil stays above $95 a barrel, and certainly if it goes above $100 a barrel," says Geoff Sundstrom, spokesman for the AAA.

The article also has the following chart:



Here's another chart of gasoline prices from This Week in Petroleum.



Notice that gas prices are usually seasonal, rising in the summer as demand picks up and dropping in the fall as demand falls. However, thanks to record high oil prices, that pattern isn't occurring this year (at least so far). As a result:

Anxious retailers are already clamoring to outdo each other with bigger and better Black Friday-like deals, threatening to make Black Friday itself a non-event this year.

"Black Friday this year may show some signs of vulnerability if retailers keep promoting to the extent that they already are," said Marshal Cohen, chief retail industry analyst with market research firm NPD Group.

Wal-Mart (Charts, Fortune 500), the world's largest retailer, isn't waiting to jumpstart its holiday sales.

Wal-Mart already treated its shoppers to an appetizer of its holiday blockbuster deals this past weekend, which included a 14-inch Acer LCD-screen laptop for $348 and a Sanyo 50-inch plasma HDTV for $998.

.....

Toys "R" Us shipped its annual holiday discount catalog late last month. Wal-Mart's rival Target (Charts, Fortune 500) rolled out it's holiday ad insert this past weekend.

Department store chain J.C. Penney (Charts, Fortune 500) currently is touting "The biggest sales of them all!" at its stores, offering its shoppers 20 to 60 percent off on clothes and home-related goods.

Also this week, Penney's rival Kohl's (Charts, Fortune 500) has cut prices by as much as 40 percent on sweaters, 50 percent on footwear and 60 percent on jewelry.

Among specialty sellers, both American Eagle Outfitters and Aeropostale (Charts) set 50 to 60 percent discounts on jeans and sweatshirts.

A few points need mentioning.

1.) Oil prices are extremely volatile right now. One of the primary reasons for oil's increase is the situation along Northern Iraq with Turkey. If this situation resolves peaceably then a large stimulus for oil's increase will be gone and traders will probably take profits. In other words, oil's price increase is extremely fluid.

2.) Counting out the US consumer is a very bad idea. Americans love to shop and usually find a way to do so, regardless of how. So don't bet against them yet.

3.) The housing market has been in turmoil for about a year now. At this time last year, we were getting the first signs of problems in the mortgage market. But the story really wasn't that important than. Now we've had a year of dropping home prices, huge write downs at various Wall Street Firms, a big summer stock market correction caused by mortgage related problems and two interest rate cuts. Another way to put this is the housing market story has been in the news prominently for about a year and none of the news has been good. This has had a definite impact on consumer sentiment, which is at it's lowest level since May 2006. So the overall consumer sentiment environment has definitely changed for the worse over the last year.

Retailers are concerned enough to start lowering prices and offering incentives. And traders are selling department store shares, indicating they are concerned enough to drop retail positions.

It's shaping up to be a very difficult Christmas shopping season.

Gas Prices Still High

From This Week in Petroleum

The U.S. average retail price for regular gasoline was lower by 0.8 cent last week to 276.2 cents per gallon as of October 15, 2007, but is still 53.6 cents higher than last year. All regions were lower except the West Coast which grew by 4.5 cents to 297.9 cents per gallon, the highest price in the country. The average price for regular grade in California was 305.3 cents per gallon, up 5.7 cents from last week and 51.3 cents per gallon over the previous year. The East Coast price fell 1.5 cents to 273.1 cents per gallon while the Gulf Coast declined by 2.5 cents to 264.2 cents per gallon, the lowest regional price. The Midwest price dropped 2.0 cents to 273.5 cents per gallon this week, plunging 24.4 cents since September 10. The Rocky Mountain region price decreased 0.7 cent to 279.5 cents per gallon.

As we inch toward the holiday shopping season this could be a problem. It is definitely something to keep an eye on.

Gas Prices Still Higher Than Last Yeat By Wide Margin

From This Week in Petroleum:

The U.S. average retail price for regular gasoline dropped 1.8 cents last week to 277.0 cents per gallon as of October 8, 2007, but is still 50.9 cents higher than last year. All regions were lower except on the West Coast where retail regular gasoline prices rose by 1.2 cents to 293.4 cents per gallon, the highest in the nation. The average price for regular grade in California was 299.6 cents per gallon, up 2.3 cents from last week and 39.5 cents per gallon over the previous year. The East Coast price fell 2.0 cents to 274.6 cents per gallon while the Midwest price decreased 2.7 cents to 275.5 cents per gallon, still 60.2 cents per gallon above last year. The region with the lowest price also tallied the largest decrease with the Gulf Coast falling 3.3 cents to settle at 266.7 cents per gallon. The Rocky Mountain region price decreased 0.8 cent to 280.2 cents per gallon.

Here's a chart of gas prices:



Notice that prices typically decline in the fall as the summer driving season comes to and end. That isn't happening this year. This could be a very important story as the Christmas shopping season approaches.

Also note that today's retail sales release was characterized as Retailers Report Slow September Sales. Gas prices could have something to do with that.

Gas Prices May Cause Problems This Fall

The chart above shows a disturbing trend as it relates to consumer spending. Gas prices typically decrease in the fall as summer driving season closes. However, that isn't happening this fall -- at least not yet. How will this impact consumer spending? For now we don't know, but I doubt anyone can argue this is a good development.



This is the primary problem -- gas stocks are at low levels.

Link

Gas Market Update

Gas stockpiles may have bottomed:



And crude oil inventories may also have bottomed. However, they are still near the top of their range.



However, notice that gas prices are not decreasing the way they did last year at the end of the summer driving season (at least not yet).



Consumers confidence is already at a two year low. The last thing the US consumer needs right now is to have gas prices further crimp their lifestyle.

Oil has dropped from its peak a few days ago. My guess is this is simple profit taking. The next big test for the oil market is to see if it holds or breaks support around $78.

Oil Stocks Decrease

From Thompson Financial:

LONDON (Thomson Financial) - US crude oil stocks fell by a greater-than-expected 3.8 mln barrels in the week to Sept 14, while gasoline inventories rose by 400,000 barrels against expectations for a decline, the US Energy Information Administration said.

The report said, however, that at 318.8 mln barrels, US crude oil inventories remain at the upper end of the average range for this time of year.

The following charts are from This Week in Petroleum



Gas prices are supposed to drop in the fall as the summer driving season ends. However, with tight supplies the possibility of gas prices remaining at current levels or moving higher is increasing. The price trend for 2007 isn't along far enough to say prices will definitely be higher. But this week's move (or lack thereof) should put people on notice that this year might be different.



Gas stockpiles are way below normal, even though



oil stocks are at the upper end of their range.



Also note the demand has increased from last year.

This is a situation we'll have to keep an eye on. Remember from the price chart that US consumers had very high gas prices in the spring before the beginning of the summer driving season.



Above is a chart of inflation adjusted personal consumption expenditure, seasonally adjusted at an their respective annual rates. Notice this spring that the increase in these expenditures wasn't that impressive. I am guessing that gas prices had something to do with that. If we have a similar gas price problem going into the fall we could have some serious trouble.

Gas Prices Now Near Last Year's Levels

From This Week In Petroleum:

For the first time since May 21, the U.S. average retail price for regular gasoline rose, increasing 2.2 cents to 298.1 cents per gallon as of July 9, 2007. Prices are 0.8 cent per gallon higher than this time last year. Regional prices were mixed with East Coast prices dropping 0.1 cent to 292.4 cents per gallon. The largest rise was in the Midwest, where prices jumped 9.1 cents to 304.5 cents per gallon. Prices for the Gulf Coast increased 0.7 cent to 285.8 cents per gallon. In the Rocky Mountain region, prices fell 3.1 cents to 306.6 cents per gallon, although they remain 17.9 cents per gallon above last year. West Coast prices were down 2.6 cents to 308.0 cents per gallon. The average price for regular grade in California was lower by 2.1 cents to 313.6 cents per gallon.

Here is a chart of gas prices from the same report:



Note that prices increased at the same time this year as last year. But, this year's prices were consistently higher than last years prices. This year's prices continued to rise into May, decreasing to current levels starting in about June.

In other words, the economy has now had about 6 months of gas prices that were higher than last year's prices, although year to year comparisons are currently near parody.

How has this impacted wages? According to the Bureau of Labor Statistics, the average hourly earnings of production workers increased from $17.16 to $17.29 from January to June, or an increase of .75%. Over the same period, the overall inflation level increased from 202.416 to 207.949 or an increase of 2.73%, for an overall drop of 1.98%.

Here's a chart of energy prices from the St. Louis Federal Reserve.



It looks like energy prices hit earnings pretty hard.

Refineries Stil Operating Below Capacity

From IBD:

Output for the week ended June 11 came in level with the prior week and well below estimates. That means supplies remain far short of normal seasonal ranges.

On the other hand, demand from the summer driving season and an economy performing above expectations is headed toward its annual peak

Here is the chart from the article:



Despite this issued with production, gas prices continue to fall:

For the third consecutive week, the U.S. average retail price for regular gasoline decreased, falling 8.1 cents to 307.6 cents per gallon as of June 11, 2007. Prices are still 17.0 cents per gallon higher than this time last year. All regions reported price decreases. East Coast prices dropped 4.6 cents to 302.2 cents per gallon. The largest regional decrease was in the Midwest, where prices fell 15.2 cents to 307.3 cents per gallon. Prices for the Gulf Coast decreased 5.8 cents to 296.2 cents per gallon, while Rocky Mountain prices fell 3.5 cents to 322.5 cents per gallon. West Coast prices were down 5.3 cents to 326.5 cents per gallon. The average price for regular grade in California was down 5.4 cents to 332.0 cents per gallon, but remains 9.5 cents per gallon above last year's price.

However, as this chart from the same report shows, gas prices are still above year ago levels.



Yesterday's retail sales indicated gas prices aren't having a negative impact on consumer spending, categories outside of gas sales showed increases.

Gas Prices Are Still Rising

From the WSJ:

The latest Energy Information Agency data show gasoline demand in the past few weeks rose 2.3% from the same period last year, outstripping growth in refinery capacity. That, in turn, is making the U.S. ever more dependent on gasoline imports.

Regular gasoline nationally averaged $2.97 a gallon, AAA reported yesterday. While that's still about nine cents shy of the highest price ever recorded, which was in September 2005, it is a record high this early in the season. Gas was selling for just $2.70 a gallon as recently as the beginning of April.

How high prices go this summer depends largely on what happens to the refineries that crank out the nation's fuel. Refinery outages in recent weeks, largely for maintenance, are part of the reason fuel prices have rocketed up. If refinery operations smooth out, gas prices could remain stable or even fall.

But the picture could be far bleaker if supply interruptions persist or intensify. In 2005, hurricanes Katrina and Rita smashed into the petrochemical-refining belt in the Gulf of Mexico, idling more than a quarter of the nation's refining capacity and sending gasoline prices climbing. Another hurricane striking Louisiana or Texas this year, even if less severe than the storms in 2005, could have a similar effect on pump prices.

"There's very little slack in the system, so it doesn't take a lot to go wrong to send prices higher," says Doug MacIntyre, senior oil-market analyst from the Energy Information Agency, a federal agency.

This highlights a few important points.

1.) Here is a graph from the same article that shows a few years of gas price history. Notice that prices typically spike in the mid to late summer. Notice this year prices are already spiking before the summer. That means we could have some really painful price action by July or August.



2.) This price action shows how silly the inflation ex-energy prices analysis is outside of Federal Reserve policy making. Consumers see total inflation -- inflation with food and energy prices -- every day. Therefore, keeping an eye on total inflation numbers is very important.

3.) The economy withstood higher energy prices last summer. However this year we have a completely different backdrop. We've had a year of sub-par economic growth. We've also had about a year of bad housing news. Those two factors could change the consumer's reaction to high gas prices.

Gas Prices Are Still Rising

From This Week in Petroleum

For the eleventh consecutive week, gasoline prices increased, climbing 7.4 cents to 287.6 cents per gallon for the week of April 16, 2007. Prices are now 9.3 cents per gallon higher than at this time last year. All regions reported higher prices. East Coast prices were up 8.4 cents to 283.9 cents per gallon. The Midwest saw prices rise 6.3 cents to 280.7 cents per gallon. The largest regional increase was in the Gulf Coast, with prices up 8.8 cents to 276.3 cents per gallon. Rocky Mountain prices increased 8.2 cents to 280.1 cents per gallon. West Coast prices were up 5.7 cents to 319.5 cents per gallon, with the average price for regular grade in California up 5.3 cents to 330.5 cents per gallon, 40.9 cents per gallon above last year's price.

Inventories are still down



And prices are still increasing: