The last TWIP in February

Wednesdays are the day that the EIA releases its figures for petroleum product production and demand, and as we move into the pre-driving season in the United States it is interesting to see how this is evolving relative to previous years, given the current recession. In terms of gasoline demand (the most interesting curve) you can see that demand is now above last year, (where we had already seen the start of a drop in consumption because of price) and is rising earlier and, perhaps a little faster (though we’ll have to wait a week or two to be sure) than last year.
Source EIA

Supplies remain in about the middle of the range, and so the situation is relatively normal. However, as I noted last week, with the change starting towards summer driving it is possible that we are now starting to take up again the surplus created when demand dropped a year ago. That surplus of available supply has been taken up by reduced production from OPEC, and yet they had not taken up to total volume of the drop, and so there was more available than needed and price dropped.
Source EIA

The next interesting question is going to be how fast demand is going to build. We can get some sense that the market is tightening by the EIA comments that they have provided on the relative price of gasoline this week. Refinery inputs remain lower than last year, but domestic production of crude continues to rise, and stock volumes are stabilizing.
Source EIA

The point that EIA is making this week is in response to the question that if crude prices are down, why are gasoline prices starting back up. They answer that the reason is that gasoline is made in a number of refineries around the country, and is a blend of different crude oils. While the price of one of these, the one that is used as the benchmark price (West Texas Intermediate or WTI) has fallen the others have not, and so crude price of the mix has not changed that much.
Source EIA

The other cause of gasoline price rise has been the increase in the margin between gas price and crude oil price. Until recently gas did not have to carry the increase in price of the crude, since the margins on the other products produced from the oil were doing very well, while demand for gasoline was lower, and the margin for it thus dropped. Now that demand is rising it can carry more of the cost of production, and thus the margin is also rising. The relative costs of a gallon of gasoline and one of diesel are also provided by the EIA. (Though this one is currently a little dated).
Source EIA

Well, for now, all we can do is wait and see how demand develops over the next month, but if it continues to go up, and the lower prices will encourage this, then I suspect that crude will start to rise, and our little price break will be over.