With gasoline prices rising in many areas lately, I'm sure many of you are wondering what the heck is going on. U.S. petroleum inventories are one of the factors in the recent price hikes.
While the data points to a drop in available supply, be aware that this is only one factor pressuring prices to move higher. Some of the other reasons we've seen the increases are because of the Federal Reserve injecting $600 billion into the economy. Immediately after that announcement was made, the U.S. dollar started taking a beating, putting pressure on oil prices to move higher as investors 1) use oil as a hedge against inflation, and 2) it makes oil cheaper in countries with stronger currencies, increasing demand.
Another sign that the economy is improving is that even with refiners supplying more gasoline, inventories continue to fall. Three charts are below. One shows gasoline inventories and how they've fallen in the last month and a half. Another shows how distillate inventories (diesel, heating oil) have fallen in the same time frame.
The last graph shows how much gasoline has been supplied for each month going back several years to 2007. Even with the economy on the mend, as you can see, the amount of gasoline supplied is the highest since 2007. That's obviously bullish news for the economy as it signals people needing more gasoline- for travels, which generally indicates consumers are spending.
What motorists need in order for prices to be pressured downward are 1) a stronger dollar 2) increasing supply from now until Christmas, and 3) weaker demand from motorists. While that may seem like its overkill, we'd likely need all three of those to hold true for several weeks to pressure prices downward. Right now there is a tug of war going on between the factors influencing prices, and the factors that pressure prices higher are easily winning the battle.
One more thing worth mentioning- while supply continues to be above average for this time of year, I believe that factor is being overlooked by the almost constant drops we're seeing in inventories. We find out new inventory data every Wednesday from the Department of Energy, so stay tuned.