Saturday, September 19, 2009

Motor Gasoline Consumption Vs Commercial Distillate Consumption

The U.S. Department of Energy's E.I.A. provides data clearly showing that the U.S. total consumption of Petroleum Products will decline by 800,000 barrels per day ("bpd").

But the consumption of Gasoline in 2009 will eclipse 2008, ergo...  ALL of the decline in petroleum consumption came from diesel fuel, jet fuel, and heating oil.  It would seem consumers, tapped out as they are, do not see gasoline prices as high enough to make any changes in their driving habits.  That would argue for much higher oil prices in any kind of expansion, particularly if you consider the number of cars being sold in the non-OECD countries.  In fact, more cars will be sold in China than the U.S. in 2009.  If gross world oil supplies do not rise, by mathematical necessity there will simply be less oil available to the U.S., and the competition for the remaining oil shipped on the world's oceans would intensify.

There is enough evidence to make a compelling case that the U.S. economy cannot long withstand Oil consumption in excess of 4% of GDP - or about $80 per barrel in today's dollars and GDP numbers.  If this proves to be true, and if the competition for imported Oil continues to grow, it would seem that there will be some significant gyrations in economic output as inefficiencies are rung out of U.S. petroleum consumption.  It would seem that with Oil currently trading at $72 per barrel that the U.S. is very close to having its economic expansion cut short.  However, this does not mean that WORLD economic output will decline at $80 - but it probably does mean that that is the case for the big industrial importers - with the reverse being true for the Oil exporters.

The US$ trend simply does not support the deflationist argument.  When investing or trading it is best not to deny what your own eyes are seeing - especially if you are on the wrong side of the trade.

Greg







6 comments:

bureaucrat said...

But your own eyes are seeing deflation. You are so wedded to an inevitable 1970s inflation-is-everywhere mentality that you'll find inflation wherever it could possibly exist. Down the road .. maybe you're right. But today, the world is firmly stuck in neutral, with debt coming out of our ears and credit disappearing by the trillions. And since higher oil prices will quickly shut down the economy (we've already seen it in 2008), there is nothing, even supply shortages, to drive overall prices higher anytime soon (except the usual education and health care).

Dan said...

It may be more accurate to say

“There is enough evidence to make a compelling case that the U.S. economy” COULD NOT “withstand Oil consumption in excess of 4% of GDP”

The new frugality is changing the structure of the economy and whether it can withstand it going forward is another matter entirely. If it can, and it very well may, then all those extropalinng from past data will provide a good source of arbitrage.

On the other hand the average daily commute is fixed in the short to midterm.

Donal Lang said...

Petrol and diesel at the pumps in both France and Britain is at around $8.30 a gallon, but it's still cheaper (in real terms) than it was in the 1980's. Life goes on.

Recent discussions in the European Parliament have been about the impact of $300 a barrel, based on a think-tank forecast which is being taken seriously. That would put petrol/diesel at over $30 a gallon with the current tax regime (which no-one is talking about reducing).

Anonymous said...

Donal,

I have always heard of the higher prices in Europe as a way of life. Lucky for you guys the mass transit that is in place helps out greatly. Wish we had it here in the US! However, the mass transit talk- to- action in the US may actually be the final nail in the US economy. It seems to me that cost of oil may actually go up quickly because of this alternative. Further destroying any sound recover, in the near term at least. So maybe we should be careful of what we wish for here in the US. Any thoughts?

Donal Lang said...

Seems to me you don't have much choice except to invest in rail, trams and canals. A high oil price will destroy truck transport of goods and car transport of people. Air transport is already going bust. What are the alternatives?

I'd say either you invest cheap oil into the rail network now, or you invest expensive oil into the rail network in the future.

You're going to 'spend' the oil anyway, so better to invest it in infrastructure which'll last 100 years that blow it on propping up a failed consumer/banking casino.

But I don't agree with Obama's high speed rail plan - that's ego talking. Most travel is by ordinary rail, fix that first.

Greg T. Jeffers said...

Bureascrat:

The US$ just says "No" to deflation.

Dan: There is the US econ, and then there is the world. Oil prices could be driven past $80 for a length of time by demand elsewhere in the world, and boy would that be bad for the US.

"average daily commute fixed in the short to midterm"? The data does not compute - less people have a job and with it a commute, yet the US has INCREASED gasoline consumption. Perhaps driving is a cheap source of entertainment? Or...?