David Kotok’s Cumberland Advisors believes something’s wrong with the Energy Information Administration’s explanation for higher gas prices.In a note to investors Friday, Peter Demirali, Cumberland’s taxable fixed income desk chief, said the fact that the Department of Energy reported gasoline demand was down 7% from a year ago makes no sense, and “may be an error in measurement by the (sic) Energy Information Agency (EIA).”
If true, it would not be surprising, given warnings about budget cuts affecting the agency’s ability to collect accurate data.
The agency may also have overlooked overseas demand.
Here’s what Demirali said about the matter:
While crude oil prices are up about 5% year-to-date, gasoline prices have risen over 18%. Gasoline is the most widely used commodity in the U.S. and certainly the most visible. Who does not drive past a gas station without noticing the price at the pump? We know that every one-cent increase/decrease in the price of gasoline impacts consumer spending in the U.S. to the tune of $1.4 billion dollars. Given a national average price of $3.92, this would equate to an $80-90 billion tax on the consumer (less money for consumption of goods and services). To complicate the picture further, the Department of Energy reported that gasoline demand is down a whopping 7% from a year ago. This makes no sense and may be an error in measurement by the Energy Information Agency (EIA). The Wall Street Journal reported that the U.S. has significantly increased exports of gasoline and this may not have been counted in the EIA’s calculations. In sum, energy prices have an upward bias and this should affect spending on other goods and services serving to dampen economic activity.