Oil Price Gains from Last Week Continue

Although we’re only barely into May, last week’s price hike for crude was almost purely due to the better non-farm payrolls report and the drop in the U.S. unemployment rate to 7.5%. News like this indicates that the U.S. economy is growing, which will in turn boost the global economy and drive up demand for oil.

Yet this morning, WTI crude traded down $0.35 a barrel even following a weekend of heightened tension in the Middle East. In the recent past, incidents like the Israeli bombing of targets in Syria would have driven prices sharply higher. What’s different?

Six years ago at the end of the last week in April, the U.S. Energy Information Administration reported that total motor gasoline supplied for the week came to 9.29 million barrels a day measured on a week average. Product supplied is an estimate the EIA uses to approximate consumption of refined petroleum products. In the last week of April this year, motor gasoline consumed totaled 8.51 million barrels a day. That’s decline of about 8.4% in gasoline consumption in just 6 years.

The decline in U.S. gasoline consumption will likely continue, and because U.S. refiners are exporting more gasoline, prices for gasoline will also decline globally as the U.S. supply grows. At the end of April 2007, gasoline exports totaled about 1.2 million barrels a day. At the end of last month, exports of gasoline had risen to nearly 2.85 million barrels a day.

The one element of the price of crude or gasoline that can’t be factored in reliably is an external shock, such as last weekend’s events in the Middle East. But those shocks are for the most part temporary, while the trend points steadily lower.

Crude prices have gained back their early losses today and currently are a bit above last week’s close. But a further sharp and sustained rise remains unlikely.