Relief at the Pump Could Generate Robust Retail Spending

Gasoline prices at the pump have continued to decline along with crude oil prices as rising supply continues to offset stable demand. Gasoline prices reflect four key components which include the price of crude oil; refining costs and profit margins; retail and distribution costs and profit margins; and taxes. The first two factors tend to be more volatile, causing most of the variation in retail gasoline prices, while the latter two reflect the retail portion and tend to be relatively stable. The decline in retail gasoline is a huge tax relief which could continue to generate significant consumer spending.

Inventories of both crude oil and gasoline continue to bloat, generating headwinds for the petroleum complex. U.S. commercial crude oil inventories increased by 7.3 million barrels from the previous week. At 387.2 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Total gasoline inventories increased by 4.1 million barrels last week, and are well above the upper limit of the average range. Distillate fuel inventories increased by 2.3 million barrels last week but are in the lower half of the average range for this time of year.

On the demand side of the equation, Total product demand over the last four-week period averaged 20.2 million barrels per day, up by 1.0% from the same period last year. Over the last four weeks, gasoline demand averaged over 9.2 million barrels per day, up by 4.1% from the same period last year. Distillate fuel demand averaged about 3.9 million barrels per day over the last four weeks, up by 3.1% from the same period last year. Jet fuel demand is up 4.3% compared to the same four-week period last year.

The technical picture shows that prices are falling through support as momentum is flattening. The MACD recently generated a sell signal which reflects further negative momentum. The relative strength index (RSI) is oversold and printing a reading of 19, which is below the oversold trigger level of 30 and could foreshadow a correction.

The post Relief at the Pump Could Generate Robust Retail Spending appeared first on Forex Circles.

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