Oil demand improves on lower prices

We Are Going to Pump You UP!

The global markets are getting ready to get pumped up on hopes of massive stimulation across many continents! Reuters News reported that the official Chinese Newspaper Xinhua quoted Chinese President Hu Jintao as saying that China would increase fiscal and monetary policy in the second half of the year. That follows the Mario Draghi pledge heard around the world that he would do whatever it takes to save the euro. So now the question is whether or not he raised expectations higher than he can actually deliver on.

That also put more pressure on Fed Chairman Ben Bernanke as he and his merry band of Fed governors meet to try to decide whether or not to act aggressively to combat a slowing economy. Obviously with the EU seemingly ready to act and the Chinese hinting they may act as well, is it possible the Fed will be forced to do their part. Or will Ben stand firm and wait to see what happens next. It seems that before the Fed acts, Mr. Bernanke wants to see Europe act first.

The slowing global economy and deflationary fears took a toll on oil prices and actually improved demand. According to the Energy Information Administration (not to be confused with the EIA which I did by mistake last week. Mea culpa!) demand for oil increased in May. David Bird at Dow Jones wrote that U.S. oil demand in May rose 1.9%, or 344,000 barrels a day, from a year earlier to 18.707 million barrels a day, revised government data released Monday show. The gain, led by a 2.4% jump in gasoline demand amid sliding prices, was the first year-on-year rise in the world's biggest oil consumer since March 2011 and the largest since January 2011. Prior to the rise reported in the May data, U.S. oil demand had fallen by an average of nearly 550,000 barrels a day in the 13 months beginning in April 2011. Total demand was the highest in any month since February and was up 424,000 barrels a day, or 2.3%, from the April level. The revised May demand figure was 0.8%, or 142,000 barrels a day, above preliminary demand estimates for the month. Demand for gasoline, the most widely used petroleum product, rose by 212,000 barrels a day from a year earlier, to 8.996 million barrels a day, the most in any month since June 2011 and 2% above the April level.

The year-on-year rise in gasoline use was the biggest since September 2009, EIA data show. The jump in gasoline use at the start of the summer driving season followed a slim 0.6% year-on-year rise reported in April. Prior to April, gasoline use had fallen by an average of 260,000 barrels a day from the year-earlier level over the previous 13 straight months, a time when prices were rising sharply. The national average retail price for regular gasoline was $3.732 a gallon in May, down 4.5% from a year ago, and the lowest monthly average since February.

May's average retail gasoline price showed the first year-on-year drop since December 2011 and the biggest decline since October 2009. The drop in May of 4.3% versus April was the biggest month-to-month price drop since June 2011. Part of the large jump in year-on-year gasoline demand in May can be attributed to extremely weak demand a year ago, the EIA said. May 2011 gasoline use was at a 10-year low for the month, as retail prices were 38%, or $1.07 a gallon, higher than a year earlier, Tancred Lidderdale, EIA analyst noted. The May 2011 average pump price for regular gasoline, at $3.906 a gallon, was the third highest on record and the most since the peak average of $4.062 a gallon in July 2008.

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