How Long Will Rising Gasoline Prices Support Crude Oil Prices?



Gasoline prices 

December gasoline futures rose by almost 6% in the past month. However, gasoline prices fell by 30% in the past year due to oversupply concerns. Likewise, crude oil prices fell by 50% over the past year due to the wide gap between the supply and demand. Historically, crude oil prices and gasoline prices mirror each other. Gasoline is the refined form of crude oil. It’s used as fuel for vehicles.

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Gasoline inventory 

Gasoline stocks fell for the third straight week for the week ending October 23, 2015. The fall in the gasoline inventory benefits gasoline prices and crude oil prices. Gasoline stocks are expected to fall for the week ending October 30, 2015. The flooding of the refinery at the Cedar Bayou facility in Texas will lead to the fall in gasoline production.

The explosion at ExxonMobil’s (XOM) Torrence refinery also led to the fall in gasoline supplies. It led to a 20% fall in gasoline production in southern California. The refinery is offline. It might start operations next year. To learn more about the supply outage, visit the next part of the series.

The latest data from the EIA (U.S. Energy Information Administration) suggest that gasoline consumption rose to 9.5 MMbpd (million barrels per day) in August 2015—compared to 9.3 MMbpd in August 2014.

The falling inventory, refinery maintenance, and rising demand are boosting gasoline prices in the short term. The rise in gasoline demand will boost crude oil prices in the short term. The preliminary estimates suggest that refineries are expected to increase their utilization by 0.3 to 87.9% for the week ending October 30, 2015. As soon as the refinery maintenance season resumes operation, we could see the gap between supply and demand diminish in the gasoline market.

Higher gasoline prices benefit oil refiners like Tesoro (TSO) and Valero Energy (VLO). Likewise, higher crude oil prices benefit oil producers like EOG Resources (EOG), Laredo Petroleum (LPI), and Whiting Petroleum (WLL). The volatility in the energy market impacts ETFs like the iShares US Oil Equipment & Services ETF (IEZ) and the PowerShares DWA Energy Momentum ETF (PXI).


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