USA Gasoline Price Components & Crack Spread
USA Gasoline Price/gallon Components:
|Feb 1 2011||2012Q4||2016/Feb|
|Demand Destruction Barrier||$4.25||$4.62||$5.28|
|New Car Sales Collapse Threshold||$3.32||$3.61||$4.13|
|Retail Pump Price||$3.13||$3.40 target||
|Gross Margin (Retail less Crude)||$1.04|
|Margin (Retail less Wholesale)||$ .65|
|Crack Spread||$ .39 ($16.52/barrel)|
During 2005 & 2006, gasoline touched $3/gallon and fell back. It didn't in 2007Q4 and the breach of $3.19/gallon ($86/barrel crude) helped push the American economy into a Technical Recession. It is little known that this price event contributed to the collapse of North American Light Vehicle Sales (see FRB chart below) and car/van/truck units/parts imports from Canada.
It should be of grave concern that the same Pump-Price/GDP ratio underlying that episode is being re-approached. The failure of Congress & successive Administrations to address America's structural deficits & mounting national debt is troubling to the global investment community (especially bond vigilantes) and is responsible for the USDollar's secular decline since January 2002.
Caveat: albeit based on best efforts interpretation of our Barrel Meter & Debt Meter projections, the Gas Pump projections are subject to unexpected geopolitical & weather related events.
Our Barrel Meter illustrates this situation's adverse effect on oil price after April 2004. As shown in the Barrel Meter component table, USD debasement was the largest forcing ($28) among component fundamentals during the $94/barrel price spike (2005-2008). As the Dollar falls, crude oil pricing rises ... and this will continue 'til the Structural Deficits are dealt with.
As a Pump-Price/GDP ratio, the Light Vehicle Sales Collapse Threshold rises along with nominal GDP over time. Through February, this danger zone is $3.34/gallon ($90/barrel USA contract crude). At this time it appears speculation activity surrounding the geopolitical events in MENA (Middle East North Africa) will cause the LVSCT to be breached for the first time since March 2008. In tandem with Debasement woes 'til the USA Presidential Election, this is a journey that could last 'til 2012Q4 and take the pump price to $4/gallon.
Should caveat events prevail, there may be solace in our thesis that any price run would be arrested by another important Pump-Price/GDP ratio @ $4.57/gal ($146/barrel contract crude). This Demand Destruction Barrier is the same threshold that reversed the July 2008 price run @ $4.11 per gallon ($131/barrel). It demarks the point where substitution and conservation measures by consumers and commerce attain critical mass.
Our forecast of an imminent auto sector downturn could be a major factor in relapsing the USA & Canadian economies back into new Recessions. It is little known that since 2004 more light vehicles/parts have been manufactured /assembled in Ontario than Michigan. This present danger is tracked at the Trendlines Recession Indicator.
Last month's Retail Price of $3.13/gallon is comprised of $2.48 Wholesale refinery product & a $ .65 Margin. In turn, Margin is made up of $ .49 Taxes & $ .16 Profit. One would think the retailers are getting very rich, eh. Well, analysis reveals Margin is only up from $ .54 in January Y2k. Taxes & Profit are up from 42 & 13 cents in that year. In other words, nominal Profit today is virtually unchanged.
The post-Y2k Crack Spread (diff betw Wholesale & Contract Crude) for Refiners can be seen ranging from $1.06 & $ .18 per gallon ($44 & $8/barrel) and is currently $ .39/gallon ($16.52/barrel). When this figure drops below $ .48/gallon ($20/barrel), Refiners prefer to produce diesel and import less expensive gasoline. This current lack of profitably is behind the recent shuttering and sell-off of facilities.
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