Is the Tank Half Full? Or. . .?

A variety of factors can have an almost-immediate effect on what you pay at the pump.

Is the Tank Half Full?  Or. . .?

Each week I get a report on the state of gasoline prices in Detroit and the outlook for what’s likely to occur from GasBuddy.com.  And for the week of June 4 (the day this is being written), gasoline prices in the area are down.  GasBuddy.com finds that as of June 3, prices “were 47.0 cents per gallon lower than the same day one year ago and are 17.8 cents per gallon lower than a month ago.”

So that’s the half-full part.  Who doesn’t want to pay less for gasoline? 

But then when we get to some of the analysis provided by Patrick DeHaan, the firm’s senior petroleum analyst, things begin to be a bit mixed.  That is, he pointed out, “With significant downward pressure on oil prices last week, motorists will continue to see prices sliding east of the Rockies, and even the West Coast will start to get in on the action, thanks to a supply situation that appears to be turning around.”  That, of course, is good news.  More supply is a good thing.

Speaking of the supply, according to the U.S. Energy Information Agency, “At almost 2.5 million bbl/d in the first quarter of 2012, Canada is by far the United States' top crude supplier, with Saudi Arabia a distant second at 1.4 million bbl/d. But the latter, too, has sent increasing volumes of crude to the United States in recent months, with first-quarter average imports up by 294,000 bbl/d year-over-year.”  Again, good, especially the Canadian part, vis-à-vis the supply.

But DeHaan went on to add, “Also pushing down oil prices last week was a frightening jobs report, as well as continued concerns about European debt problems.”  In other words, there is a slowdown in the U.S. economy, which means that less oil is being consumed, which increases the supply, which decreases the price—for those who can buy it.  And the situation in Europe is largely a financial mess, which has a number of consequences, including those that have an effect on their sourcing of energy supplies.

In addition to which, the Chinese economy is slowing of late, which is good from the standpoint of the availability of oil on the world market (don’t forget that it is the largest vehicle market in the world right now and it has been growing at an amazingly extraordinary rate; now it is probably just extraordinary).

So while there is increased production of crude from places like Canada and Saudi Arabia, there is also a real or anticipated decreased demand.  This is the half-empty part.

One of the consequences of this decrease in oil prices may be that consumers begin to feel that holding off on that F-150 (with the V8, not the EcoBoost) or Cadillac Escalade  is something that they no longer need to do (this category of consumers, of course, consists of those who continue to be employed).  So this ups the demands for the full-size vehicles, which ups the production of said vehicles. 

But then, let’s posit, that (1) the U.S. economy gets stronger; (2) the Euros get their financial house in order; (3) the Chinese get back on track; (4) and/or something goes awry in the Middle East and Saudi production is affected. 

Any of these can have the consequence of driving the cost of gasoline back up.*  And chances are, those people with the full-size vehicles aren’t going to be so happy, anymore.  And there is the very real risk that OEMs who were happily cranking up the production of full-size trucks will find that the market has shifted to mid-sized cars and crossovers.

This means things are less than half-empty.

Here’s hoping that the executives running the North American car companies do a better job of managing their supplies and expectations than those who were evidently fitted with rose-colored glasses and in charge just a very few years ago.

 

*Note: This is not to argue against an improving U.S. economy, a solution to the Euro debt crisis, GM selling more Buicks and whatnot in Beijing, or for a crisis in the Middle East.  It is to point out that there are a variety of factors that can have an almost-immediate effect on what you pay at the pump.