Weak Gasoline Demand Creates Headwinds for Petroleum

Petroleum prices have rebounded slightly but remain depressed near the bottom end of the current range.  The recent barrage of weaker than expected economic data and the realization that the US could become an oil exporter has placed pressure on crude oil prices, driving WTI down below 95 per barrel.

Inventory from the Department of Energy has been skewed toward crude oil stocks with distillate stocks continuing to show levels at the bottom end of the 5-year range.  Gasoline stocks, ahead of the May unofficial beginning of driving season after in the middle of the 5-year range for this time of year,

U.S. Gasoline stocks

U.S. Gasoline stocks

Source – Department of Energy

According to the energy information administration latest estimate on inventory, U.S. commercial crude oil stocks increased by 2.7 million barrels from the previous week. Gasoline inventories decreased by 0.6 million barrels last week but remained in the middle of the average range. Distillate fuel inventories decreased by 2.3 million barrels last week and are near the lower limit of the average range for this time of year.

Demand for gasoline remains stable, but the recent weakness in crude oil inventories has spilled over into the total petroleum sectors price action.  Over the last four weeks, motor gasoline demand has averaged just less than 8.5 million barrels per day, down by 1.2 percent from the same period last year. Distillate fuel demand has averaged about 3.8 million barrels per day over the last four weeks, up by 5.5 percent from the same period last year.

Technically, crude oil prices remain below current resistance in the form of the 10-day moving average which is seen near 94.10.  Support is seen near the recent lows at 92 and then the lows made in the beginning of March near 90.  The 90 level coincides with a long term upward sloping trend line that connects the lows made in July of 2012 and the lows made in November and December of 2012.  This four point trend line that also held support in March is a key level for crude oil.

Momentum on the May crude oil contract is negative with the MACD (moving average convergence divergence index) generating a sell signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The index has moved from positive to negative confirming the sell signal.  The RSI (relative strength index) is printing near 45, which is above the 30 trigger level for an oversold condition.

 

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