3 Shocking Energy Trends That Should Scare Investors

by Jeff Reeves | February 16, 2012 6:15 am

Energy is the lifeblood of the global economy. Factories need energy to run, and goods need fuel to get shipped.

So it is wise for investors to keep an eye on trends in the energy sector as a way to gauge the status of the economic recovery — or, when trends are ugly, a sign that investors might be in for a bumpy ride.

There are a host of indicators and headlines relating to oil and energy consumption, but here are three recent reports I found that I think are particularly telling.

All three should set off warning bells, and investors should take note:

Diesel Consumption

The UCLA Anderson School of Management teams up with employment services firm Ceridian Corporation to track real-time diesel fuel consumption data. The pair’s most recent report shows an alarming decline in use of the key fuel.

Specifically, the “Pulse of Commerce Index”[1] — that’s the official name for the diesel data — fell 1.7% in January following a 0.4% decrease in December. January’s figures are not just down month-over-month, but also off 2.2% from last year.

PCIJan2012 300x213 3 Shocking Energy Trends That Should Scare Investors
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Most disturbing? The diesel index shows almost zero growth since the summer of 2010. Check out the chart.

“It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic[2] indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, chief economist for the index.

In short, something doesn’t add up.

This index is not a magic measuring stick. But diesel obviously is a crucial part of the national economy and a good proxy for rail traffic and truck traffic … and thus worth paying attention to.

Gasoline Deliveries

EIAchart 300x122 3 Shocking Energy Trends That Should Scare Investors
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As with diesel, broader gasoline deliveries reflect the ebb and flow of the economy. Check out this chart about monthly total U.S. deliveries as measured by the U.S. Energy Information Administration:[3]

This data is most interesting because it is raw. It is not “seasonally adjusted” or modified based on flash estimates and revisions. It is, for all intents and purposes, real demand.

The biggest takeaway? Retail gasoline deliveries are well below 1980 levels, with no sign of rebound, despite the fact that the recession is “over.”

Now, we have to consider that these are deliveries, not raw demand. So the phenomenon takes into account the general trend that gas stations are stockpiling much less than they used to — likely because margins are so tight and there isn’t a lot of cash on hand to tie up in inventories. Stations are not in the storage business at all these days.

But it’s hard to blame everything on a drop in inventories alone. In November 1983, gasoline deliveries were 51.1 thousand gallons per day. In November 2010, the total was 42.8 thousand gallons daily. Even more disturbing? Just a year later, in November 2011, they were 30.9 thousand gallons.

No Leaders in Alternative Energy

Energy isn’t all about fossil fuels, cars and broad demand. So-called “green collar” jobs are part of what should be an emerging industry as alternative energy gains popularity and as Americans move toward cleaner sources of power.

Except there’s no money in green energy. So companies are going under and jobs are being eliminated, not added.

Take First Solar (NASDAQ:FSLR[4]), the biggest U.S. solar company, which ousted its chief executive officer in October and still is seeking a replacement. Few people want the job, since FSLR stock has gone from over $310 per share in 2008 to a mere $40 right now. Earnings per share have fallen from $7.68 in 2010 to $5.80 in 2011 to a projected $3.93 in 2012. Not good for the heavyweight of U.S. solar.

Wind isn’t much better. At Vestas Wind Systems (PINK:VWDRY[5]), the largest turbine maker, the chairman and finance director are leaving after the company cut sales forecasts twice in three months.

If there is trouble filling jobs in the corner office, that’s not very inspiring for rank-and-file employees.

Throw in the bankruptcy of Solyndra LLC[6], which left the U.S. government responsible for $527 million in debt, and things are ugly in alternative energy.

Just consider this telling quote from an alternative energy headhunter, trying to find leaders for these struggling companies:

“It’s becoming significantly more difficult to attract people into this market,” said a clean technology recruiter[7] at Korn/Ferry International. “In my 15 years, this is probably the most difficult time to recruit.”

Jeff Reeves[8] is the editor of InvestorPlace.com. Write him at editor@investorplace.com[9], follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

Endnotes:
  1. “Pulse of Commerce Index”: http://www.ceridianindex.com/news/release/January-PCI-Decreases/
  2. economic: http://www.calculatedriskblog.com/2012/02/ceridian-ucla-diesel-fuel-index.html
  3. U.S. Energy Information Administration:: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M
  4. FSLR: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSLR
  5. VWDRY: http://studio-5.financialcontent.com/investplace/quote?Symbol=VWDRY
  6. bankruptcy of Solyndra LLC: http://investorplace.com/ipo-playbook/solyndra-where-did-your-tax-dollars-go/
  7. said a clean technology recruiter: http://www.bloomberg.com/news/2012-02-13/first-solar-to-vestas-wind-profit-crash-deters-new-ceos-energy.html
  8. Jeff Reeves: http://investorplace.com/author/jeff-reeves/
  9. editor@investorplace.com: mailto:editor@investorplace.com

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