High oil prices hit retail spending

US retail Jun12.pngBrent oil prices have just finished a record sequence of 240 days above $100/bbl. This was longer than the 170 days in 2008. And longer, on an inflation-adjusted basis, than in any previous period of high oil prices.

In Europe, prices were actually higher than in 2008 due to the lower value of the euro versus the dollar. Prices averaged €85.06 at their peak in June 2008. But in 2012, they were above this level continuously from January – May, and peaked 12% higher at an average €94.99 in March.

UK prices have seen similar peaks, due to the weaker £. Tesco are the world’s 3rd largest retailer, and as CEO Philip Clarke noted last week, when revealing disappointing Q1 growth figures:

“A tank of petrol still cost about £70, compared with £45 two years ago. That is an amazing dent in household budgets.”

US oil prices have been slightly weaker than Brent in recent months, but still averaged over $100/bbl from January into May. The reversal of natural gas prices back to long-term averages also helped to support consumer spending.

But even in the US, as the above chart from the American Chemistry Council shows, the damage has been done. Inflation-adjusted sales (orange line) have dropped quite sharply in recent months. As the ACC note:

“The report provides further evidence that the recovery is softening and consumers are again holding back, constrained by persistent unemployment and low wage growth.”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. Paul is also an invited member of the World Economic Forum’s Global Agenda Council. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such as oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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