Get Out And Drive

Gasoline demand was one of the culprits in yesterday’s oil demise as demand slipped, causing problems for the Fed as Janet Yellen says all the pieces are in place for inflation. Yet the weakness in gasoline demand and economic data may suggest that we may be seeing some underlying softness in the economy. Now you might not think that if you look at the jobs reports and the help wanted ads but in general, the gasoline demand numbers don’t jive with a booming economy.

We were expecting to be seeing record demand but instead, we are seeing contraction and that may help to explain weak retail numbers yesterday as well as lack luster inflation. We don’t see yet gasoline demand going and one might wonder about the health of the U.S. economy as gas demand is a leading economic indicator. The Energy Information Administration (EIA) reported that gasoline inventories increased by 2.096 million barrels last week against market expectations of a 1,150 million-barrel draw. Demand was down from last week and over the last four weeks, motor gasoline product supplied averaged over 9.5 million barrels per day, down by 1.2% from the same period last year.

Still, the EIA reported crude oil inventories, provided many contradictions. The EIA reported that crude supply fell by 1.661 million barrels. Not as large as the 2.45 million barrels estimate but much larger than the American Petroleum Institute (API) that reported a 2.750-million-barrel increase. In Cushing, Oklahoma though we had a drawdown of 1,156 million barrels as opposed to the API reported 833,000-barrel drop. Refinery demand was strong as crude oil refinery inputs averaged about 17.3 million barrels per day as refineries operated at 94.4% of their operable capacity last week. 

Yet with weak gas demand and a negative report from the International Energy Agency, the mood was bad and it had a hard time seeing anything positive. Oil though, after falling, seemed to stop in mid-air not wanting to take out 4413 July on the May 5th crash low giving the market a least a shot for a recovery or even a bottom. What makes this day even more intriguing is the fact that today is the July crude option expiration that could lead to some interesting moves.