Psychological Damage of $3.50 Gasoline Going to $4.00 (UGA, USO, XOM)

Car companies make most of their money on SUVs and crossover vehicles?  What happens to those sales after gasoline rises and rises?  It has been hard for many Americans to understand why with the recovery being so weak and with Europe at the brink, but gasoline and oil have been heading higher and higher mostly on concerns over Iran. The problem is that the economy is also holding up better than many expected.  West Texas Intermediate is now up around $102.50, and gasoline is nearing $3.50 per gallon again.  Think about this… $4.00 gasoline could be coming again.  That would not be very welcoming.

The Department of Energy now has an average of $3.52 per gallon of gasoline, but GasBuddy lists its average price at $3.493 per gallon.  Regardless of which is correct, $3.50 per gallon of gasoline is back.  This is the highest level since last September. 

It is going to take more than $3.50 to derail the recovery, but what happens if market pundits are correct about much higher gasoline coming at the pump as we get closer to the summer driving season?  If you look at the one-year chart (http://gasbuddy.com/gb_retail_price_chart.aspx?time=3) from GasBuddy you can see that gasoline prices rose and rose from mid-February right up into May.  Gasoline peaked out at almost $4.00 per gallon.

Now if you go back in time and recall the phrase “Sell in May and go away!” as far as the stock market… If you would have sold stocks at the start of May and gone away, you would have cleaned house.  You can probably blame Europe and U.S. slowing for that more than $4.00 gasoline, but it is amazing just how much the coincidental factors are.

The thought is that higher gasoline prices have a twofold impact.  The first is that the more people spend on the gas they have less to spend on other consumer goods that drive the economy.  The second and often far worse measure is the psychological damage of high gas prices, which causes consumers to begin slowing their spending purchases and putting off big-ticket spending items.

T. Boone Pickens was calling for oil prices to hear higher just last night on CNBC.  The consumer base, and the economy, better hope he’s wrong.  $3.50 per gallon in gasoline is one thing, but $4.00 is another.

The United States Gasoline Fund LP (NYSE: UGA) is up almost 1% at $55.02, and the United States Oil Fund (NYSE: USO) is up 0.1% at $39.23.

Exxon Mobil Corporation (NYSE: XOM) is always believed to be a winner with high oil prices, but refining margins and incredibly low natural gas prices have pressured earnings.  Still, Exxon Mobil shares are up 1.7% at $85.57 against a 52-week range of $67.03 to $88.23 and this one peaked in the mid-$90s during the 2007 to 2008 oil bubble.

JON C. OGG