Fewer people getting gas these days …

Quotable

“The country irresponsibly was pushed for a very difficult situation in the financial markets. Before this difficult situation, that could have been prevented, I understand that it is necessary to appeal to the available mechanisms of financing in the European picture in adequate terms to the current situation politics.”

Fernando Teixeira Dos Santos, on Portugal’s need for a bailout

Commentary & Analysis
Fewer people getting gas these days …

Word has it that gasoline demand is rather sluggish now that prices are rising pretty steadily. Recent weekly drawdown in gasoline stocks plus rising crude oil prices have supported gasoline futures, but is the picture as bullish as it seems?

What do you know – demand for gasoline is falling in the US. In the US last week demand sunk by 1.2%. week-over-week and 3.6% year-over-year. And in fact, year-over-year demand numbers have been mostly declining since the end of February. Here is a bit from Nasdaq.com:

Four-week gasoline demand averaged 9.234 million barrels a day, the most since late December. But four-week demand dropped 1.4% from a year ago, the first time this average has declined for two consecutive weeks this year.

Listen closely – is that the sound of demand destruction?

In the near-term, at least, the price of gasoline futures look technically extended. That could mean a short-term pullback is in order and perhaps the catalyst will be a demand rethink. You can see that RBOB prices have sprung loose of the 50-day, 100-day, and 200-day moving averages:

If you’re a gasoline bull, never fear – John Felmy of the American Petroleum Institute is here. According to Columbus Business First, “Felmy said the high demand for gasoline isn’t going away because there are 250 million gas-powered vehicles on U.S. roads.”

Gee, thanks.

Felmy also said in early 2008 that because there are 25 major investment banks on Wall Street, the high demand for SIVs, CDOs and MBSs isn’t going away. (Ok, maybe he didn’t say that.)

Whether or not you want to lend a lot of meaning to the recent gasoline demand statistics, they are at least worth noting as everyone digs deeper to determine if, when and where high crude oil and gas prices will start denting the US and global economies. Maybe the US consumer still has some flexibility to cut back on discretionary items and repurpose some income to filling their tanks. But what about those in China?

It’s been a long-running theme that’s sort of been outdone by the theatrics going on in the Middle East, but China is still tightening down to avoid runaway inflation.

This week China again hiked interest rates; that came after another reserve requirement hike a week or two ago. And then today China has announced a hike in their gasoline and diesel prices. Well, they’ve tried to discourage excess lending as a way to hamper inflation; might as well try creating our own demand destruction – maybe that will eventually seep through the markets and help to stabilize the rising cost of fuel.

The 5% increase in gas prices is meant to help Chinese refiners facing rising costs from high crude prices. But the higher fuel costs will likely aid and abet inflation. Perhaps this is a signal that next week’s inflation report out of China will be pretty rough anyway and come in at or above the high side of expectations.

We saw the European Central Bank raise interest rate this morning. The move was highly anticipated but still holds an element of surprise in that the European periphery is still in shambles.

We’re also starting to see some of the recent US growth optimism fade – downward GDP revisions, ISM services sector sluggishness, durables goods slumping, lackluster consumer confidence and demand. Yes, we’ve seen the worry-warts come out in droves a couple times over the last 12 months predicting an end to the US recovery … and they have thus far been proven wrong. But how might new predictions for a muddling US economy mix with a Chinese economy that is still clamping down and a Eurozone that too is trying to protect itself from rising prices?

Many try to predict the threshold at which rising energy and fuel prices will significantly impact growth. Some say $110, some say $120, some say $150. But considering the fragility of the US and eurozone economies plus the sensitivity of the Chinese economy to inflation, maybe this threshold is a lot lower than people think. Concern over global demand is not what the risk appetite crowd likes to see.