Oil and gas inventories came in with a bit of mixed news this week with oil dipping slightly and gasoline moving slightly higher. The summer driving season is here, and there doesn't appear to be any noticeable declines in the supplies of either.
To be sure, here are the charts on both the gasoline and oil stocks for this past week respectively:
If you take a look at the long-term charts for both oil and gasoline, you may notice that we are above average on both of these supplies. For the data that I have going back to 1990 for gasoline and 1980 for oil, the average for gasoline is 209,300 while we are sitting at 213,100. Slightly above average. However, for oil, it's a little more above the average of 325,526 while we are at 341,300. We've got more than plenty of oil. With the current supply levels higher than we've seen in a number of years, one would also assume that the price would be lower than normal. Geopolitical concerns are clearly to blame for charts that look like these:
Just yesterday we touched all-time highs for the trading contract in gasoline. The commodity is settling down since yesterday's run-up. But, the overall trend for both oil and gasoline is higher.
I'm a firm believer that aggregate demand will tip supply levels over the edge in the coming months. As the consumer slows down, so will their needs for oil. The old saying that "When the U.S. sneezes, the world gets a cold" should also have a significant effect on the levels as well. Even China will succumb to the slowdown and should ease up on its consumption rates. I'm not looking for a huge decline in the price. But, I think if we saw prices in the mid $30's - $40's we'd be about in line with supply levels.
In the meantime, there is another element about the rise in oil prices that should be kept in the back of traders' minds. What about the effects on inflation? As these prices continue to rise, so will expectations that Fed moves will continue. We're not out of those woods just yet.