Gasoline Inventory to Sales Ratio: Is Demand Stabilizing?

As gasoline prices inexplicably found a bid we examined the relationship between gasoline and distillate stocks to sales. Using the EIA data we have created an “inventory to sales” ratio for the product sector of the crude market.

Click to enlarge:

The chart above graphs our inventory to sales ratio which is computed by dividing the stocks by demand. If stocks are increasing at a faster pace than demand then the ratio will climb.

For weeks you have read our comments on the oversupplied distillate market and now we have graphical proof. The blue line that is going parabolic is distillate stocks divided by demand. The chart shows that the supply of product is outpacing demand by almost a record margin.

As traders, when we see a chart going parabolic our first instinct is to short whatever the chart represents. Therefore, we must zoom in to see how the ratios are performing on a weekly basis.

Click to enlarge:

This chart zooms in from April 2008 to present and illustrates that in the last few weeks demand has begun to gain some ground on stocks in the distillate components. The best that can be said about gasoline is the rise has stabilized.

We now have data that show modest improvement in demand relative to inventory, but we caution one point does not make a trend.

Disclosures: None

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Comments

[Karen Consumer]

People who don't have jobs to drive to don't drive as much. People who do have jobs to drive to are scared and don't drive anywhere else to save what they can in case of the worst. Even in China, where everyone in the market seems to be putting all their eggs, America and Europe aren't buying Chinese made products, so they have less money to spend on gasoline. China can prop up their own economy all they want, but they are more dependent on exports than America and Europe, and until they can sell more, they can't buy more either.

Talking heads can say anything they want. I'm finishing up week 4 of actively seeking employment, and nothing so far. I filled up my tank on 7/9/09. Today it's 7/24/09 and I've 1/2 tank left. Barring a job, it may be 8/9/09 before I fill up again (14 gallon tank). Take that to the bank and profit from it.

2009 Jul 24 12:15 PM

[G. L. Turner]

What we are seeing in the futures markets, separate from real traders and hedgers trying to make rational trades, is a small group of pariah who have figured how to 'game' the entire system, seeking to use manipulative instructional analyst comments, which the media suck up to, to reel in a numenr of sheeple, only to periodically 'short' them all every few months.

In the meantime, the head of the CFTC stands by watching his former cohorts give it to us all in the backside - again and again and again...and yes, as Karen Consumer stated so vividly, there is much less demand, and mcuh more pain out here on the Main Streets of the world. And the WH is draging its heels of reg reform!

2009 Jul 25 12:25 AM