Connecting Three Dots, But No Analysis, No Explanation -- And I Don't Have Anything Else To Say About This Right Now -- August 22, 2018

Connecting three dots, but no explanation. I have no explanation for this.

The first dot: American consumers have only so much money to spend each week. That's a fact. How much they have from week to week, from month to month, from year to year, varies, but it is a fact (and a dot) that American consumers have only so much money to spend each week. Some of that money is spent on mortgage/rent; some on food; some on public transportation; some on gasoline; some on college expenses; some on casinos; some at the mall; some at the Dollar Store, but Americans only have so much money to spend each week.

The second dot, from this link:

The third dot:

Economy: the retail numbers being reported this week are simply sensational ....

Two questions:

• do all three dots connect? and, if so,
• why?

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Background

Gasoline demand: yesterday afternoon -- US EIA says US Gulf Coast gasoline stocks build as refining holds above historic norms. Refiners have been operating at or near 98.1% capacity for several weeks now.

Gasoline demand: is a red herring, 2016 --- Forbes -- from the columnist who forecast the death of the Bakken, Art Berman. 

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Analysis

As far as I can tell, no one has done a serious analysis of why gasoline demand is lagging this year compared to last year.

Any explanation has to take into consideration that this is a recent phenomenon. At wore, it's a 12-month shift; at best it's a six-month shift. 

Long-term trends in driving habits, buying habits, etc, can't explain a sudden change like this. I also don't buy any argument in which arbitragers are "playing" the game differently this year. The EIA data is straightforward: the EIA is simply tabulating reports from all US refineries: how much gasoline did each refinery deliver. (But this could be the explanation -- see below.)

That's why I rule out two things immediately as possible explanations for the decrease in gasoline demand year-over-year:

• "the Amazon effect" -- this is a long-term trend; this did not happen "overnight"
• EVs -- another long-term trend; can't explain a year-over-year change in gasoline demand that we are seeing now

Other possibilities:

• Art Berman would suggest it has to do with exports of gasoline -- see the linked Forbes article above
• thirty-party storage facilities (like those owned by the Koch Bros?) are ordering less gasoline for storage (either their tanks are filled, or they don't want to be hold gasoline in storage that might fall further in price)

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Misleading

In the Forbes article above, Art Berman argues "gasoline demand" is a "red herring" because of gasoline export data. Maybe it is, maybe it isn't.

But he uses a very, very misleading chart to try to prove his point.

A quick glance at this chart suggests that the US exports way more gasoline than it produces (impossible, of course); and that the US exports way more gasoline than it actually consumes domestically (absurd).

Look at that graph and what I just said jumps out at you.

You have to read the very, very small print (and on the computer screen it's even more difficult): the left x-axis, measure in 10s of thousands, is "total product supplied and sales." Meanwhile the x-axis on the right is measured in hundreds.

On the left, the chart maxes out at 11,000,000 bbls; on the right, it maxes out at 600 bbls (and, in fact, the green line -- exports -- only goes to 400,000 bbls --- 400,000 / 10,000,000 = 4%.

I assume Art Berman would suggest that the drop in US gasoline demand in the summer of 2018 is due to a decrease in US gasoline exports.

Let's check, from the EIA, this data:

Nope. Exports are increasing. Significantly. To meet that demand, refiners have to maximize operating capacity. And they have to "deliver" on that "gasoline demand." The EIA "gasoline demand" data includes gasoline that will be exported.

So, in fact, domestic consumption (demand) is even worse than the "gasoline demand" graph suggests.

If, in fact, that domestic US gasoline demand is lower year-over-year, I have some thoughts but will not post those thoughts for now. But I think the "three dots" explain a lot.