Drivers Using Less Gasoline, Yet Inventories Fell. Huh?
August 20th, 2008 | by Brian Carr |The price of crude oil climbed slightly higher today - up 45 cents to end the trading day at $114.98 - based largely on a U.S. government report which showed a larger than expected weekly drop in gasoline stockpiles.
According to an article published on CNNMoney.com, gasoline inventories fell by over 6.2 million barrels last week, putting the inventory level below what is average for this time of year. This data, in and of itself, wouldn’t usually pique my interest, and would be a sufficient reason to see the price of oil jump slightly.
However, in reading the CNNMoney article a little more closely, this inventory drop didn’t seem to make much sense. According to the same inventories report:
“Consumers are still driving less than they did at this time last year. Over the last four weeks, gasoline demand has averaged about 9.5 million barrels per day, which is 1.6% lower than the same period last year.”
OK, that certainly seems to be conflicting data coming out of the same report. On one hand you’ve got data showing increased gasoline consumption - i.e. falling inventories - but on the other hand you’ve got data showing continued decreased demand for gasoline.
Granted, I realize the decrease in gasoline inventories was measured over the prior week, while the gasoline demand was measured over previous four weeks. That being said, the gasoline inventory drop - which was more than double what economists were expecting - seems a bit odd considering demand for gasoline has been falling the past four weeks.
Am I the only one that doesn’t get this? Let me know your thoughts.
3 Responses to “Drivers Using Less Gasoline, Yet Inventories Fell. Huh?”
By Rob on Aug 21, 2008 | Reply
I assume inventory is like a big barrel with a fill spout at the top, and a spigot at the bottom. The spigot at the bottom was being drained at a rate 1.9% lower than last year at this time, but the amount in the barrel is not related to the rate at which it was being drained at this time last year. It’s what was in the barrel, say a month ago, less what’s gone out through the spigot at the bottom plus what’s been added through the fill spout at the top. The rate at which we drained it a year ago is, to a large extent, irrelevant.
So even if we slow down our draining of the barrel, if the refineries refill the barrel even more slowly, inventories will fall.
By Joe on Aug 21, 2008 | Reply
Duh. That’s the point. Why are refineries slowing production? Is it to artificially keep prices high?
By thelmi on Aug 21, 2008 | Reply
Of course it is… even with the levels of speculation in the oil market, supply and demand still have a hand in price. Since the demand has dropped slowing the rate of replacing the supply will effectively maintain high prices. you also have to consider that countries like China and Pakastan for example, have dramatically increased their consumption and that oil has to come from somewhere. That’s my 2 cents a litre.