Dan discussed the weak reports from retailers last week, indicating potential belt-tightening by the U.S. consumer. The headwinds to U.S. consumer spending are well known, so today I wanted to mention one tailwind: lower gas prices.
The U.S. retail gasoline market is quite fragmented, so no one clean price exists. Overall though, gas prices are hovering near 2 year lows, aided by the recent drop in crude oil over the last 2 months.
Front month NYMEX gasoline contract over the last 4 years:
Refining capacity has improved over the last couple years, so gasoline prices have remained lower despite the rally in crude oil this summer. Now that oil is on the decline, gasoline is near its multiyear lows. Crude oil is also in an interesting spot technically, nearing crucial long-term support after a few months of back and forth:
The $98-$100 area served as resistance throughout late 2012 and early 2013 before finally breaking above there this summer. Now that crude oil has traced back down to that area, which happens to coincide with the 200 day ma, bulls and bears are likely to fight it out more aggressively.
In spite of falling commodity prices, energy stocks have done quite well. XLE has held above the $80 level for the past 3 months, a show of strength near 5 year highs:
The $80 holds important long-term significance, as that was where XLE stalled in early 2011. XOM, the largest component, held crucial support near $85 late last week.
Crude oil is down again this morning, with many traders noticing the potential topping pattern. If the recent selling in oil turns out to be a fakeout rather than a breakdown, relative strength in energy stocks vs. the actual commodities might indicate a move to new highs for the sector. In the meantime, enjoy the lower gas prices.