Oil Supply-Demand Balance May Be Tightening

Well, the latest oil inventory report has now been released by the U.S. Energy Information Administration and we see the continuation of many of the same trends that have been occurring over the past few weeks.  In particular, the amount of crude oil in commercial inventories continues to increase while the amount of gasoline in the the country's inventories continued to decline.  This appears to indicate that Americans are beginning to drive more as oil prices continue to decline.

At the end of the week ended October 31, 2014, the nation's commercial crude oil inventories contained 380.2 million barrels of oil.  This is a slight increase of 500,000 barrels over the previous week.  This is a much smaller increase on a week-over-week basis than what we saw during the week ended October 24.  This could be an indication that American consumers and businesses have begun to increase their demand for oil, likely buoyed by gasoline prices which continue to fall.  It is also worth noting that despite all the media hype about the United States glut of oil, inventories are substantially below the levels they had during the same week of last year.  This has also been a recurring trend over the past several weeks.

In a continuation of the trend that we have been seeing over the past several weeks, the amount of motor gasoline that is stored in the nation's inventories declined week-over-week.  At the end of the week ending October 31, 2014, the nation's inventories contained a total of 201.8 million barrels of gasoline.  This amount was 203.1 million barrels at the end of the previous week.  At the same time last year, these same inventories contained a total of 210 million barrels.  These figures only increase my conviction that the fall in oil prices is prompting consumers to drive more, thus increasing demand for the commodity.

The nation's refineries processed considerably more crude in the week ended October 31, 2014 than in the same week of last year.  This has been the case for a while now.  However, with that said, the amount of oil processed by refineries has been steadily declining over the past month, so that may be thought to be partly responsible for the declines that we have been seeing in the nation's gasoline inventories over the past month.  However, this is not the case.  During the four weeks ended October 31, 2014, the nation's refineries supplied an average of 8.977 million barrels of gasoline to the market every day.  During the four week period ended October 24, 2014, the same refineries supplied an average of 8.848 million barrels of gasoline to the market every day.  Thus, gasoline production has been climbing but inventories have been falling.  This can only mean that demand for gasoline in the United States is increasing.

Despite the fact that demand for gasoline is rising and the overall supply of oil is lower than last year, oil prices continued to trend down over the past week.  On October 31, 2014, WTI closed with a spot price of $80.53, down from $81.27 on October 24.  The October 31 spot price was also much lower year-over-year, as WTI closed at $94.56 at the end of the same week last year.