The weak payroll numbers out this Friday (according to the government, nonfarm payrolls added 120,000 new jobs in March, down from 240,000 jobs added in February and below consensus expectations of 200,000) echo a disturbing trend I’ve been seeing lately in another key economic indicator. The U.S. Energy Information Administration (EIA) U.S. Total Gasoline Retail Sales By Refiners has fallen off a cliff from 40.3 million gallons per day (MGD) in January 2011 to 28.4 MGD in January 2012 (the last available data) — the lowest monthly number ever in the data series, which began in January 1983. On the surface, the weakness in this number seems to imply significant economic weakness in the United States. However, it is unclear how much of the decline is related to cutbacks at the ConocoPhillips, Sunoco and HOVENSA refineries ahead of threatened permanent closures of these refineries (due to claims of unprofitability and economic unsustainability). The fast rising crack spread –the difference in price between gasoline and crude oil — seems to imply a gasoline supply issue (too little supply) rather than a lack of demand.
Should the crack spread continue to expand, Western Refining (WNR) should benefit. They refine and market crude oil and refined products in West Texas, Arizona, New Mexico, Utah, Colorado, and the mid-Atlantic region. However, I view the closing of major refining capacity in the U.S. as unlikely since the government views a loss of this capacity as a national security threat. But until the government intervenes, the crack spread may continue to rise. The bottom line: the weakness in U.S. Total Gasoline Retail Sales By Refiners may reflect an industry supply issue rather than a weakening economy. This makes Western Refining an interesting speculation.