The latest data from the U.S. Energy Information Administration (EIA) showed that the average cost for Regular gasoline in America rose by five cents during the past week to $2.92 per gallon. That is the highest reading since 2014 and represents a nearly 20 percent surge since the start of the year. Regionally, the cheapest gas in the country can be found in Louisiana, where a gallon of Regular costs just $2.61 on average. Residents of California as usual have to pay the most in the U.S. for Regular ($3.70/gallon), and San Francisco remains the city with the nation’s highest average cost ($3.82/gallon). A major factor behind the rise at the pump has been a spike in the price of oil.
Indeed, the cost for a barrel of West Texas Intermediate crude has jumped by more than 10 percent since early-April and now hovers around an almost 4-year high. Apart from rising demand and supply constraints, the sudden run-up in the price of oil has likely been exacerbated by short-covering, i.e. traders with bearish bets forced to cover (buy) as prices move against them. However, hedge funds have been trimming their long positions (taking profits) over the past few weeks, implying that professional money managers are selling into this recent strength. Whether that means the oil rally will take a breather remains unknown, but what is certain is that if energy costs stay elevated for a prolonged period it could start to become a drag on consumer spending, especially since cheaper gasoline on its own has not been able to provide a significant boost to retail sales. Bank of America Merrill Lynch even estimated that “a permanent oil price shock to $80/barrel would shave roughly 0.2 percentage points from [economic] growth over the next eight quarters while a sustained shock to $100/barrel would cut roughly 0.5 percentage points.”
Sources: U.S. EIA, GasBuddy, U.S. CFTC, Reuters, ZH, BofAML
Post author: Charles CouchDisclosures