The US Economic and Sentiment damage of $4.00 Gasoline

UGA, USO, XOM

As WTI Crude taps 105 bbl, it is time to assess the threat of $4.00 a gal gas.

The Summer driving season is usually a threat to gas price stability and gasoline is now averaging above $3.50 a gal throughout the USA.

The threat is here, the threat is real. At the long weekend if you filled up the tank with premium unleaded the price was over $4.16 gal in Los Angeles.

It will likely take more than $3.50 gal at the pump to derail the recovery, but $4.00 gal is another story.

Looking at the 1 year chart from AAA you can see that gasoline prices rose from mid-February right into May.

Gasoline peaked at about $4.00 gal, and things start heading down for the broader economy.

The USA as the rest of the World, runs on energy, so the tie to Crude Oil cannot be ignored. High Crude Oil prices have a 2-fold impact.

1. consumers spending more on gasoline have less to spend on other consumer goods that drive the economy. Higher gasoline price act as a regressive tax that hurts middle-income earners and low-income earners the hardest. The figure widely used by the media is that each 0.01 of higher gasoline price takes out over $1-B from economic spending each year. So the difference of $4.00 vs. $3.00 gas is over $100-B in consumer spending.

2. is the psychological damage of high gas prices. When consumers are paying more and more for gasoline, the start to slow down on their spending purchases elsewhere, as at the grocery store. A person’s daily spending habits change. As far as big-ticket items, they get pushed off.

With Israel’s saber rattling and Obama’s and EU’s January sanctions, Iran is effectively off of the Western market for now.

The United States Gasoline Fund LP (NYSE:UGA) is up almost 0.7% at $55.43 and the United States Oil Fund (NYSE:USO) is up about 1% at $40.13.

Exxon Mobil Corporation (NYSE:XOM) is believed to be big winner with high Crude Oil prices, even if refining margins and incredibly low Nat Gas prices are pressuring its margins and earnings.

Still, Exxon Mobil shares are + 0.8% at $86.32 and that has the stock within $2.00 of a 52-wk high. This stock peaked around 95.00/shr during the Y 2007 to 2008 Crude Oil bubble.

Margin requirements for traders to speculate in metals and energy futures were recently lowered. Maybe it is time to raise them again.

Last week I was only hearing that $4.00 gasoline was just a threat, now it is a reality.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
www.livetradingnews.com

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Posted by Shayne Heffernan on Feb 22nd, 2012and filed underEnergy, Latest News, Oil, Paul Ebeling, USA.You can follow any responses to this entry through theRSS 2.0Responses are currently closed, but you can trackback from your own site.