The latest oil inventory report, released on January 7, 2015, continued to disprove the narrative that there is a massive glut of oil (it is actually about 0.7% of global demand) by stating that the amount of oil in the nation's commercial inventories actually decreased over the week. This was the second week in a row in which oil inventories decreased. Many bearish traders and analysts have begun to issue calls that investors should ignore the trend in oil inventories and focus instead on gasoline inventories, which have been increasing.

As already mentioned, the amount of crude oil contained in the nation's commercial inventories declined for the second week in a row. At the end of the week ended January 2, 2015, the nation's commercial crude inventories contained a total of 382.4 million barrels of crude oil compared to 385.5 million barrels at the end of the previous week. It is worth noting, however, that this is significantly more oil than what was in these same inventories during the corresponding week last year. This is a trend that began back at the beginning of December. Prior to that (despite all the talk about a glut), the nation's inventories consistently contained less oil than in the corresponding week of the previous year. At the end of the week ended January 3, 2014, the nation's inventories of crude oil contained a total of 357.9 million barrels.

Despite the decline in crude oil inventories, the amount of gasoline in the nation's inventories of that substance increased significantly from the preceding week. At the end of the week ended January 2, 2015, the nation's gasoline inventories contained a total of 237.2 million barrels of gasoline compared to 229.0 million barrels at the end of the week ended December 26, 2014. The nation's gasoline inventories also contained considerably more gasoline than they did a year ago. At the end of the week ended January 3, 2014, the nation's gasoline inventories contained 227.0 million barrels of gasoline.

The most likely reason for the persistent growth in the nation's gasoline inventories is that the economy has begun to slow. Despite media claims to the contrary, a decline in oil prices like the one that we have seen over the past several months is actually a net negative for the economy. I have explained why in two recent articles. In short, the energy sector has been one of the only sectors that has seen growth in full-time middle-class jobs since the Great Recession ended and the decline in oil prices now threatens many of these jobs. Overall, this has the effect of reducing demand for gasoline.

In previous installments of this series, I have stated that the production of gasoline has been increasing. This was also the case in the most recent week. During the four week period ended January 2, 2015, the nation's oil refineries produced an average of 9.329 million barrels of oil per day.  Compare this to the four week period ended December 26, 2014 in which the nation's oil refineries produced an average of 9.264 million barrels of gasoline per day. These figures are significantly higher than what the country's refineries were producing last year. During the four week period ended January 3, 2014, the nation's oil refineries produced an average of 8.840 million barrels of gasoline.

It seems likely that this increase in gasoline production also contributed to the growth in the nation's gasoline inventories, although the early stages of a slowdown in the economy is certainly playing a role. Interestingly however, this increase in gasoline production came in spite of the fact that the amount of oil being processed by the nation's refineries declined. During the four week period ended January 2, 2015, the nation's refineries processed an average of 16.360 million barrels of crude oil per day. This compares to an average of 16.412 million barrels per day during the four week period ended December 26, 2014. Both of these figures are, however, higher than the year-ago numbers. During the four week period ended January 3, 2014, the nation's oil refineries processed an average of 16.136 million barrels of oil per day.

Oil prices have continued to decline despite the decrease in oil inventories, indicating that the markets have become somewhat disconnected from this metric. With that said, analysts and traders have been telling investors to ignore that metric and look at gasoline inventories instead, which helps to explain the reasoning for this. It will be interesting to see how this plays out.