With all of the media hype around the most recent rise in gasoline prices one would expect consumer sentiment to crater. It will have to do so from a high level. The Conference Board reported that consumer confidence hit a high in April.
James Hamilton at Econbrowser is fearful that this gasoline price go-round will have a greater effect on consumer behavior. The thinking being that last year's Katrina-spike could be written off as an extraordinary event. Now consumers may come to believe that higher gasoline prices are here to stay. This could lead to lower consumer spending, ex-gasoline.
Higher oil (and gasoline prices) may seem like a double-edged sword to the big oil companies. James R. Healey and Matt Krantz in the USA Today report on the growing backlash against the oil industry. From consumers to the government everyone seems to be looking for a scapegoat and big oil is an easy target.
"I don't demonize the oil companies, but I know the crowd will have a lynch-mob mentality" when hit with multibillion-dollar oil earnings every day this week while coping with near-record gasoline prices, says analyst Tom Kloza of Oil Price Information Service.
Even former oil man Pres. Bush is jumping on the "do-something" bandwagon. In an announcement the President is defering additions to the Strategic Petroleum Reserve (SPR) and is ordering an investigation into price-gouging.
The SPR is an interesting beast. Ticker Sense has a nifty graph that shows the long-term history of the SPR. One can clearly see an increase in the SPR since 2001. It is unlikely that a halt to SPR additions will have anything other than a psychological effect.
Daniel Gross notes the problem facing the U.S. is a global one with powerful forces at work. With countries like China and India ratcheting up demand for oil we are unlikely to see any great abatement in global demand. However Gross notes the U.S. could make things easier for itself by accelerating conservation-like behavior.
There are already anecdotal reports that Americans are already changing their behavior in light of higher gasoline prices. Any one who has take Econ 101 should not be surprised. Indeed if people were serious about further reducing demand for gasoline they would look to measures to keep gasoline prices high via gasoline taxes.
Paul Kedrosky points out a cool graph that shows the seemingly wide disparity in gasoline prices around the United States. While the media (on both coasts) is kicking up a storm there are wide swaths in the flyover states that experience much lower gasoline prices. One should not assume that this is due to the profit dyanmics of gasoline retailing.
Given all the press recently one would think that those drivers with E85 vehicles would be having a better time of it. Richard J. Newman at US News notes the difficulty in finding ethanol-compatible pumps. The GM advertising campaign seem more like a "rear guard action" to try and gain time and public sympathy for the troubled automaker.
Given all the cross-currents at work it would seem like a no-brainer to continue to hold energy stocks. However Michael Panzner at the ETF Investor thinks a number of factors point to outperformance for oil versus the integrated global oil majors. This logically leads to a pairs trade – long oil, short oil companies.
The gasoline story is not going away by any means. While we disagree with their conclusions on executive pay, we are in complete agreement with Going Private that resentment against "big oil" lead to the hue and outcry over the pay package of former Exxon Mobil (XOM) CEO Lee Raymond.
It should be clear from this post that the gasoline story is a multi-faceted one. It crosses economic, geopolitical, technological, psychological and market borders. That is what makes it both interesting and frustrating for those of us who follow the markets. Investors should tread carefully amidst this landscape where rhetoric and a "do-something mentality" can interfere with market fundamentals.