Sadly, everyone has seemingly forgotten that the lessons of the past can help prepare us for the future. For example, one would assume that the sting of owning an truck or SUV during the financial crisis would stick with consumers long enough to deter them from falling back into the same trap again just because oil was trading lower... then again, just as assuming market participants would remember that time period, one would be wrong.
So here we are once again. Last year, SUVs outsold any other type of passenger vehicle in Europe for the first time, and the trend has continued into 2016 as Bloomberg reports.
The same is occurring in the US, as today light trucks, vans, and SUVs account for 60 percent of the total vehicle sales, a level only reached briefly in 2005 when Brent averaged $55/bbl - meaning that once again low oil prices have lured consumers back into buying less fuel efficient vehicles.
In April, the average car sold achieved a fuel economy of 25.2 mpg, down from a peak of 25.8 mpg set in August 2014. As Bloomberg notes, at current trends, 2016 will mark the first drop in average US fuel economy since at least 2007.
"Fuel economy improvement is really flatlining. The gains completely stopped right at the same time that oil prices started to decline" said Sam Ori, executive director of Energy Policy Institute at the University of Chicago.
As further evidence that consumers having amnesia, light trucks as a share of total US vehicle sales is also hovering around record highs since 1976
China is not immune to this of course, as according to official data, vehicles such as light trucks and SUVs accounted for almost 35 percent of Chinese passenger sales in April, up from 10 percent in 2010, and less than 5 percent a decade ago.
"Consumers are thinking that a period of plentiful oil supply is here to stay" says Christof Ruhl, head of research at the Abu Dhabi Investment Authority.
US demand for fuel peaks between the Memorial Day holiday in late May and Labor Day in early September when Americans usually take vacations, so given the trend of consumers going to bigger, less fuel efficient cars, it's easy to determine that demand will perhaps help oil prices rise during that time. However, a lot depends on the global economy and the supply side of things, neither of which look to be helpful at the moment, as US and China manufacturing PMIs are slumping and Saudi Arabia plans to boost production even more.
All we can say to this is that just as with the last financial crisis, cheap oil is there until its not, and vehicle manufacturers have demand for all of those trucks and SUVs until another crisis hits and they find themselves back in need of a bailout for over committing to those product lines.
As for the markets, well, we know how that ends as well.
Which reminds us of Rudyard Kipling's poem "The Gods Of The Copybook Headings", specifically this portion:
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrewAnd the hearts of the meanest were humbled and began to believe it was trueThat All is not Gold that Glitters, and Two and Two make FourAnd the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of ManThere are only four things certain since Social Progress began.That the Dog returns to his Vomit and the Sow returns to her Mire,And the burnt Fool's bandaged finger goes wabbling back to the Fire;