Friday, April 18, 2008

Gasoline not showing any signs of consumer retrenchment

If there is a recession underway, you would not know it by looking at the consumer and business appetite for gasoline here in the U.S. Retail gasoline is at an all-time high ($3.44 5 according to AAA), but demand is 0.8% higher than a year ago according to the U.S. DOE EIA.

OTOH, demand for jet fuel is down -3.0% from a year ago.

Note that the steep rise in retail gasoline prices is primarily due to the role of speculators in commodities markets, not demand or any supply shortages.  The rise in demand is quite modest while inventories of gasoline are "above the upper limit of the average range" for this time of year according to EIA. We would be seeing lower prices if the normal law of supply and (end-user) demand were in effect.

Regardless of the reason for the price rise, consumers are finding both the wherewithal and the necessity (e.g., they do have jobs and priority tasks) to keep up the pace of motor vehicle travel.

Also note that even if consumer spending on gasoline cuts into discretionary spending, it is still consumer spending and counts in GDP.

The good news about rising gasoline prices is that it is in turn fueling interest, research, and development of alternative energy sources, whether it be biofuels or electric and hybrid vehicles. So, there is a silver lining to even the dark cloud of speculative-driven energy prices.

-- Jack Krupansky

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