Most of the trade publications in the energy industry continue to talk about “strong demand” for energy products, including gasoline. They, in fact, never actually stopped using the description even though the global economy came perilously close to recession conditions in the second half of 2015. It became common from trade groups to point out that usage last year hit a record high, but that is true of almost every year, so it is a meaningless phrase.
Despite “reflation” that has gripped almost every market, where it has been less evident is in the more important commodities. Copper, for example, has rebounded to around $2.70 from a low just less than $2.00 about a year ago. That only sounds impressive outside of the wider context of copper’s multi-year trajectory, which just so happens to match that of global “dollar” conditions.
Similarly in oil, after nearly three years of a so-called supply glut (because of strong demand, of course) there is still no progress toward normalization of inventories. Therefore, there is and likely will continue to be a hard limit on the “reflation” in terms of oil prices, which is a significant component of what reflation is supposed to be.
Downstream of oil in the gasoline space, inventories continue to rise well above seasonal expectations. Over the past twelve weeks since the start of November, the US EIA estimates that gasoline inventories have risen by about 36.1 million barrels. That is less than the same weeks in 2015-16, where inventories during what was a sharp global economic slowdown grew by 41.2 million barrels. The change in gasoline inventories during prior years was significantly less than either of those; +24.4 million 2013-14; +29.9 million 2012-13. That would suggest that so far in 2017 conditions of either supply or demand (or both) of gasoline is far too much like 2016 than 2013.
High levels of inventory were attributed at mid-year 2016 primarily to unusually high crack spreads. The US EAI reported at the end of July 2016:
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