Saturday, March 12, 2016

Strong Gasoline Demand and It Is Not Even Close to Summer

The latest report from the Energy Information Agency shows that over the last four weeks, a key measure of demand known as motor gasoline product supplied was up by 7% year over year at more than 9.3 million barrels a day.

“The data shows strong gasoline demand that’s outpacing the 2007 and 2008 rates for this time of year, with 2007 the current record high in annual U.S. gasoline demand,” said Brian Milne, energy editor and product manager at Schneider Electric, according to Myra Saefong at MarketWatch.

Usually, gasoline demand is weakest in January and February and increases as the weather warms once past maintenance season, he said.

The strong demand is translating into prices climbing off their lows. From a low of $1,70 per gallon on a  national average in mid-February, prices are now up by 13.5% to $1.93 per gallon.

Here are the areas where on last week was seeing “significantly” higher gas prices compared to prior reports:
“Gasoline demand appears to be among the heaviest, seasonally, that I’ve ever witnessed,”  said Patrick DeHaan, senior petroleum analyst at, according to MW.

This is nothing though compared to the gains in the crude oil price over the same period. From a mid-February low of $26.19 a barrel for West Texas Intermediate crude, the price has climbed 44.8% to $37.90 per barrel.

Storage facilities are still stuffed with oil so you could see quite a bit of volatility in the price of crude and gasoline in coming moths. Oil supply will, however, shrink in the second half of 2016 and at that time the price gains in crude and gasoline will stick, with the gasoilne price catching up to the advances in crude.

This is going to result in acceleration in overall price inflation. As both Federal Reserve Chair Janet Yellen amd Vice-Chair Stanley Fischer have pointed out in recent speeches all that is needed is for oil prices to stop falling and you will see significant advances in government inflation price indexes.

Yellen and Fischer have this correct. Where they get things wrong is how intense the acceleration will be. It will overshoot the Fed'sr bizarre price inflation target of 2% (Why do you want an inflation rayte of 2%?) and quickly climb, as measured by government indexes, to 3%, which Yellen and Fischer will dismiss as temporary, and they won't get concerned until inflation hits 5%. By then they will be far from ready to make the interest rate hikes that will be needed,6.00% to 7.00% (?) on the Fed Funds rate, currently at 0.36%.

Gasoline prices will lead the price acceleration, enjoy the relatively low prices while they last.


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