Review of EIA Weekly Report for 7-20-2022

Last week I posited the notion of demand destruction. Not quite so sure about it happening after this week's numbers. While down -2.19% from year ago levels, quite a jump (7.1%) from last week's number. Information is from the EIA Weekly Report

I would suggest the jury is still out on demand destruction. The gasoline inventory did jump by 3.5MB, while crude fell -455KB and distillates down -1.3MB. Spot market for gasoline is suggesting another 35¢ per gallon fall... from current average of $4.467. 

Exports of Crude and Petroleum Products outpaced imports to the tune of 4.6MB to reach a disparity since March of 129,266,000 barrels. Gasoline slid to 17,087,000 barrels as it may be that we are finally returning to a more normal seasonal flows. Typically imported gasoline outpaces exported from late December until mid summer, and then reverts to exports being more than imports.

The past few years, with understanding covid messed up 2020...

The stronger dollar is also playing a role in bringing down WTI Crude prices. By way of comparison, if the dollar was at same level as end of July 2021, the price would be $119.14, rather than the current $102.28. 

Another example would the impact on U.K. pricing of Brent...

This helps explain some of the fall in U.S. pump prices, versus U.K., which is not seeing much of a decline. This might seem beneficial to the U.S. consumer, but a word of caution... the dollar has been know to fall quite significantly at times. 

2008 would be a reminder, when we in the U.S. were talking about our high gasoline prices and trying to compare the high prices in the U.K. and the EU, by using the exchange rate at that time. The dollar was at its weakest since the early 70s... by quite a bit.

As an exercise, the U.K is currently at £1.88 per liter, at £88.90 per barrel of crude. We are at $102.28 and pump price average is $4.467. IF the dollar was at April 2008 levels, the numbers for the U.K. would stay the same in THEIR currency. However, the WTI crude would be at $154 and pump prices would be near $5.50 national. We in the U.S. would attempt to make ourselves feel better, by using that weak dollar to convert the £1.88 per liter, the Brits are actually paying and come up with something like $10 per gallon. 

In any case, the dollar rises and then it falls. Don't expect anything permanent and don't strut with glee over a strong dollar. Just understand that rise and fall does impact any global commodity.

On to the Natural Gas futures, and yes in dollars, as it makes it easier for me to understand. 

Even with the conversion, I cannot make sense of what appears to be a train wreck in the works. Granted the UK gets about 40% of its Natural Gas for the North Sea, and that pricing is probably mixed with the spot market, prior to end user... But those future would seem to suggest a much higher price on the "mixed" result to consumer. 

I got enough to worry about here, although our Natural Gas stocks are rebounding, but anything near a midpoint of 5 year average. While crude, gasoline, etc. were distorted by covid, not so much for Natural Gas.

I guess the bottom line is whether we are starting to see demand destruction in the crude/gasoline side of the equation and then if that destruction is due to a slower economic outlook or simply high prices? 

Retail Trade Report for June 2022

Start off with the Census Bureau release...

Advance Estimates of U.S. Retail and Food Services

Advance estimates of U.S. retail and food services sales for June 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $680.6 billion, an increase of 1.0 percent (±0.5 percent) from the previous month, and 8.4 percent (±0.7 percent) above June 2021. Total sales for the April 2022 through June 2022 period were up 8.1 percent (±0.5 percent) from the same period a year ago. The April 2022 to May 2022 percent change was revised from down 0.3 percent (±0.5 percent)* to down 0.1 percent (±0.3 percent)*.

Retail trade sales were up 1.0 percent (±0.4 percent) from May 2022, and up 7.7 percent (±0.7 percent) above last year. Gasoline stations were up 49.1 percent (±1.6 percent) from June 2021, while food services and drinking places were up 13.4 percent (±3.9 percent) from last year. (emphasis added)

Once again, gasoline played a major factor. However, accounting for inflation and backing out gasoline, the sales were flat... over the month. 

My nutty assessment... We are foregoing fixing up the house and ourselves, placing emphasis on getting back and forth to work and using online shopping from our new comfortable recliner!! 

How else can you explain it.

All in all, not a bad report, as holding steady outside of gasoline is quite a feat, in my opinion.

Of course, we're still paying more for less... a trend likely to continue, until we run out of money and/or credit. 

So when the headline says something like "excluding gas stations, consumer spending was up 5.3% the past year". That 5.3% is NOT inflation adjusted. Just remember, excluding energy, inflation was up 6.6% in the past year. So we are back to spending more for less. 

We already knew that!!

Producer Price Index for June 2022

 

Time for more painful inflationary discussion. The BLS has now released the June Report. (historical releases)

The Producer Price Index for final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.9 percent in May and 0.4 percent in April. (See table A.) On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022.

So yes... okay, gasoline was a factor and those prices are now falling. As someone stated, this is old data and gasoline prices have been falling for 30 days. Except... backing out the energy impact, it is still 8.5%. It was 8.6% last month, so golly, gee, wow... things are improving? /S 

While there does seem to be "some" easing, the outlook going forward is still inflationary. Golly, who could have guessed that?

The various inflation numbers, as it stands now. Pink is higher!!

The U.K. and Canada are not updated for June in this chart, but here goes...

Yep, it is global inflation, but it was mostly the USA (using EU methodolgy)... in August, compared to the EU, with some narrowing of that gap in January. However the gap has narrowed significantly since the war began. It boils down to just another excuse that doesn't hold up over time. 

In August the EU was at 3.4% and using the EU method, the USA was at 6.2%. In January, the USA was at 8.0% using the EU method and the EU was 5.1%. The EU is currently at 8.6% and my estimate of their methodology has the USA at 9.7%. 

Wow, the gap has narrowed sufficiently to say it is a global problem. Let's mix apples and orange to find an excuse that will dazzle the masses. /s

Tomorrow presents us with the Advance Retail Report. I cannot see how it could be positive. Certainly the numbers will "shine", but they are not inflation adjusted. I will attempt to do that.

Review of EIA Weekly Report for 7-13-2022

 

Is demand destruction taking place in the gasoline market? The weekly EIA report does seem to suggest it. A whopping jump in gasoline inventory from last week (+5.8MB), although not at last year's level. The consumption numbers would lead me to believe that someone may have stubbed their toe, when doing the math. Highly unlikely, so consumption dropped off considerably.

Crude inventories jumped 3.3MB and distillates up 2.7MB. Across those 3 we get 11.8MB of products. 

Oh wait, I forgot the imports/exports. We had been exporting roughly 1MB per day more than importing of all products. This week indicated we imported slightly more than exports. Since March, we have exported 124,597,000 barrels of Crude and Petroleum products, than we have imported. 

Gasoline, on the other hand... continues to exported more than imported. 17,500,000 barrels more since March.

It still puzzles me, as this report is for week ending July the 8th, which included the July 4th holiday. Apparently, most people stayed home at shot off fireworks. It seemed that way in my neighborhood and lasts for days on end. Seriously, July the 12th and still lighting them up. 

In any case, the gasoline pump prices are on the decline, although not falling as fast as they rose. Still can see gasoline falling to $4.10 regular for the national average. Probably won't get there this month, but in August... possibly. Of course, it could all change very quickly. 

I should mention the importance of the strong dollar. In an alternate universe, where the dollar was stable compared to last year, the price of WTI crude would be in the $115 range and not the current $96. Hooray for the strong dollar... until it begins to weaken, which it will. It's just when.

On to the Natural Gas futures...

I have no idea where Europe and the U.K. stands on their natural gas supplies, but the pricing indicates a lot of pain going forward. I can only think of the USA status and hope for the best.

It seems a long time ago, but once there was a saying... if the U.S. sneezes, the rest of the world catches cold. Times have changed and I suspect... if Europe sneezes, the rest of the world will catch a cold. Maybe not that extreme, but if Germany is E.U.'s engine and their exports have fallen dramatically, even with a weak Euro... then something is terribly amiss, in my humble opinion. 

Breakdown of CPI DATA and Real Earnings, June 2022

It is that time of month, to survey the damage from inflation. The BLS report was released this morning and it was a whopper. (historical releases)

Remember that 8.6%~8.9% forecast? Toast!!!

From the release...

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3 percent in June on a seasonally adjusted basis after rising 1.0 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 9.1 percent before seasonal adjustment.

The result looks like this...

I didn't fare much better, with an increase at 8.0% y/y and 1.1% m/m.

The various inflation numbers, from the BLS and others ended up looking like this. The Eurostat is my estimate, based on several months of data collection and attempting to understand their method. Their last data published for the USA was in April. 

With nothing really good on the inflation front, the hourly real earnings were dismal, falling further below the pre-covid February 2020 number.

The weekly real earnings followed the same pattern...

I will attempt a July reading for the CPI-U, as I do expect the month to month to be nearer to "0", than this month's 1.3%. This is mostly due to gasoline prices continuing to fall. This mornings national average was $4.61, and is steadily falling to possibly $4.11 per gallon... based on current future's pricing. This would be pricing back in the good old days, of April's average. 

March was actually higher at $4.22; May at $4.44; June at $4.93. February was at $3.52, for those interested.  However, the end of July will most likely still be in the $4.30 range, with a July average of approximately $4.55. (Barring any disruptions in refinery operation, etc.)

Backing the gasoline's rise out of the index, the CPI-U would have been about 8.4%. So the fall off of gasoline pricing does have a significant impact for this month's projections. Also, the core came in a bit higher than anticipated. 

So, I will project 0.3%~0.5% month to month and a reading of 8.9%~9.1%. I fervently hope I am over shooting, this time. 

Once again, in the too early to project C.O.L.A. category, I am adjusting to 9.4%~9.6%. The past few months have been much hotter, year on year, but we are now entering the normal seasonal slowdown period in certain areas and the rate of inflation "should" start to ease. 

The should start to ease, might be clearer with tomorrow's PPI release. I would hope for softer numbers. Friday's release of the retail sales, might also provide a further hint to "demand destruction". Then there is the role being played by the strong dollar. Without that, WTI crude would be about $115 per dollar. This also is impacting imported goods as well. How much of that "trickles down" to the consumer... is to be seen.

Review of EIA Weekly Report for 7-07-2022

 The EIA.GOV released their weekly report.

Here are some interesting tidbits... Our exports of Crude and Petroleum Products since March, stands at 124,758,000  million barrels more than our imports, which up near 5 million barrels from last week's report. Gasoline exports during the same period now stands at 16,625,000 million barrels more than our imports and up about 400K from last week. 

There is some semblance of relief at the pump, as current conditions indicate the national average drifting lower another 50¢ to around $4.25. You would think they might be lower, with demand decreasing, but imports still rule the day. If and when Europe settles down, expect these high prices to continue. But hooray, we can cheer for $4.25 at the pump, like it is some sort of consumer victory.

As certain politicians are already cheering the SPR release as working. It kept the crude prices somewhat at bay, but really did nothing for gasoline prices in the USA. You simply cannot export gasoline like we have the past 4 months and expect anything different.

Now on to natural gas (data from yesterday's close)...

I cannot help but notice the problems with futures, concerning U.K. and Europe in general. I recognize that U.K and Europe are outside my area of concern, but we talk about recession in the USA and what we are doing or not doing (about it), when we might consider a recession in U.K. and Europe, despite what they are doing or not doing. 

I wouldn't count out a NG shortage this winter in Europe. It would serve you know who quite well, as it would divide NATO. You know who might get blamed for a cutoff, but the root blame would fall elsewhere and by elsewhere... you know where!

On the bright side, the gasoline prices in the U.S. should continue to fall, as no hurricanes or "other" storms appear on the horizon. Even U.S. natural gas has somewhat stabilized, due to Freeport shutdown. 

Amazingly, government regulators have stepped in to embark on strenuous safety oversight... which will likely delay Freeport's timetable for restart and full operation of LNG exports. Remember... it is all about safety and has nothing to do with replenishing U.S. natural gas storage for the coming winter. 

Time to rest up for next week, which has a bunch of reports about June. Not sure what to expect.

Allow Me To Butt In, With a Rebuttal of Sorts

Here is the premise...

Some politician said it is the patriotic duty of gasoline suppliers to reduce costs and some rich dude says the politician is misdirecting or unaware of how the market works. This happened to flow right into some of my social media accounts.

This prompted one poster to reply with this. I won't do a screen capture, as it might be some violation of something. You can open the link. Crude Oil (WTI) is up 40% and Gasoline is up 60%, both from 1 year ago. It does seem to support the theory, that gasoline prices are out of line.

The problem being WTI and Brent are Global Benchmarks and Gasoline is basically a U.S. market... benchmark. So why is this? (click to enlarge)

This seems to have started diverging last fall. Here is the Price history of WTI Crude and Gasoline Futures. Which seems to be the product of exporting more gasoline than importing. For that information, here is the export history and the import history. (Weekly, in thousand of barrels).

IF gasoline futures had stayed in line with WTI, the futures would be around $3.44 and we (U.S.) would be averaging around $4.29 at the pump... nationally, and we would still be griping. 😭

I made this easy(?) to read graph on the difference...

Yes, we have upped the exports of gasoline and thereby forced the gasoline futures to battle with global pricing structures... just to keep gasoline in the USA. 

I didn't check on every country, as various countries are subsidizing, but I do keep tabs on the U.K. Even when factoring in the U.K. using a bit higher octane rating, the U.S. gasoline is a bit cheaper... when backing out taxes. This is not intended to explain away U.S. prices, but rather the nature of global pricing structures.

As to the patriotic theme, that is clearly intended for an American audience that sees a familiar name and thinks of it as an AMERICAN brand. In fact, they are Multi-National (Global) Enterprises. So they likely are being patriotic... but to what nationality?

Our patriotic politicians could reinstate the crude oil export ban, that was overturned in late 2015, and it would bring down the WTI price, but does not help the gasoline side of the equation, as there were no limits on gasoline exports. 

Has releasing 1 million barrels a day from the SPR done anything? Why yes, it has kept the WTI from going through the roof and gasoline following a similar track. 

Speaking of the SPR, with the draw of 1 million barrels per day to end at end of October... the U.S. is already planning to replenish those barrels.

Not sure what that will do to crude or gasoline futures, but there will be somebody, somewhere, ready to complain and blame someone. That someone will always be of the opposite political persuasion. 

It is sad to watch... but somehow, very entertaining as well. 

As for the Crude oil and petroleum products, much the same trend, for those interested...