Streaks are made to be broken. Oil prices broke the string of higher closes as tepid demand and rising supply seem to be zapping some of this market's bullish enthusiasm. Oh sure, the EIA supply report was more bullish than the American Petroleum Institute report, yet even that report did not suppress the nagging question of ample supply. I suppose you can say that the market is focused on better days ahead but for now if oil goes higher, it is a clear example of oil price stagflation.
Oil prices rise as demand decays. Despite impressive moves in precious and base metals oil seemed less than enthusiastic. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.8 million barrels from the previous week. That put them at 342.7 million barrels which is way above the average range for this year. That number is more bearish than the API number but what was strange was that according to the DOE the supplies in Cushing, Oklahoma did not budge. Kind of makes you wonder.
The DOE reported that motor gasoline inventories increased by 0.8 million barrels last week and are near the upper limit of the average range. Distillate fuel inventories increased by 1.2 million barrels and are above the upper boundary of the average range for this time of year.
The DOE also reported that for the fourth consecutive week, the U.S. average price for regular gasoline fell, dropping about 7¢ to $2.46 per gallon. The national average price has tumbled a total of nearly 23¢ over those four weeks, to bring the price to $1.60 below last year. Prices fell in all regions of the country with the largest drops occurring in the Lower Atlantic area of the East Coast and in the Midwest. The price slipped 7¢ on the East Coast to $2.47 per gallon. In the Midwest, the price fell about 8¢ to $2.36 per gallon. The Gulf Coast continued to have the lowest price of any region with a price dip of 6¢ to $2.32 per gallon. For the second week in a row, the price change in the Rocky Mountains was the smallest of any region, slipping 4¢ to $2.52 per gallon. On the West Coast, the price dropped a nickel to $2.77 per gallon. In California, the average price also fell a nickel to $2.83 per gallon.
The DOE also said that diesel prices fell in all regions of the country, with the U.S. average price dropping about 5¢ to $2.50 per gallon. That price was $2.22 below a year ago. On the East Coast and Gulf Coast, the averages slipped 5¢ to $2.51 and $2.44 per gallon, respectively. The average price in the Midwest fell four cents to $2.47 per gallon. The Rocky Mountain region recorded the largest decrease, falling 6¢ to $2.56 per gallon. The price on the West Coast dropped a nickel to $2.60 per gallon. In California, the price dipped marginally.
The reason they are falling is poor demand. Demand growth just is not there. Over the last four weeks, motor gasoline demand has averaged nearly 9.2 million barrels per day, up by 0.7% from the same period last year. Distillate fuel demand has averaged about 3.3 million barrels per day over the last four weeks, down by 11% from the same period last year. Jet fuel demand is 13.9% lower over the last four weeks compared to the same four-week period last year.
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Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
