Oil Prices Soar on Economic News and G20 Meeting

As we write this blog, WTI prices are up over 7% this morning with crude oil trading slightly under $52 a barrel.  Yesterday, oil prices were in the $47-$48 range as the value of the US dollar was rising and the weekly inventory numbers were sour. 

While crude oil inventories rose by 2.8 million barrels from the prior week to a 15-year high and gasoline inventories increased by 2.2 million barrels when the "experts" called for a decline, a lot of the discussion about the data focused on the first fall in gasoline demand from a year ago in a number of weeks.  We were told that US average gasoline prices were nearing $2 a gallon and this was probably impacting the demand. At the time the data came out we were unable to take the time to examine it, so we were relying on the media.

Looking at the figures makes us a little skeptical of the "analysis" as the average of the most recent  four weeks gasoline demand was 9.038 million b/d.  From the same period a year ago, demand was off 0.2%, or approximately 23,000 b/d!  So when did we become so focused on such exactness?  This is a quarter of one percent fall.  It raises the question of whether we can assume that all the data is so precisely measured that this small of a difference can become the focus of an analysis that moves markets.

To the contrary of the gasoline demand analysis, we found it interesting that Toyota Motors, when releasing its March unit sales that were down 39% from a year ago, pointed out that they were up from the February level, suggesting to them that maybe we have seen the worst of the auto sales plunge.  Clearly the government is doing all it can to confuse American consumers.  Will GM go bankrupt or not?  Will you want a car with a warranty from the US government? Maybe Buy American isn't such a strong factor in consumer spending decisions on discretionary purchases.

A lot was made of the rise in gasoline pump prices to $2 a gallon from the recent $1.80s.  Last year, the marveling was that gasoline demand was plummeting in the face of $4 a gallon (when in reality consumer spending habits were changing).  It might be more instructive to look at the difference in weather conditions that were creating signficant havoc across much of the United States. 

The analysis of the gasoline and oil inventory data is another example of the glass half full or half empty debate that goes on when people are trying to call the future course of economic statistics.  We are at a bottom, there are small signs of demand improvement but clearly the timing and pace of any economic and energy industry recovery will be challenging to predict with any degree of exactness.  But we remain confident that energy has seen the worst - we just aren't sure when it will be evident to everyone that we are in an upturn.