Market Report: U.S. Gas Consumption in State of Hibernation

America hibernates as gas consumption hits a 13 month low. The drop in demand led to big surge in gasoline inventories according to two widely followed industry reports.

The first hint that America seemed to stay home for the holidays came from the MasterCard Spending pulse report that showed that gasoline purchases fell to 8.93 million barrels a day which was down 3.5% from the week before and the lowest level of gasoline demand since September 2009. That drop in demand probably explains why in another report by the American Petroleum Institute that showed gasoline inventories surged by 5.58 million barrels. These reports suggest the obvious, bad weather and the holidays had an adverse impact on gasoline demand. Yet it may also show that demand may still be a bit price sensitive. Retail gas prices also surged last week as the national average pump price rose 4 cents last week to $2.62 a gallon. That according to Bloomberg is 63% higher than it was a year ago at this time.

Of course the increase in price should help inspire a bit more refinery activity. The February gasoline crack spread that indicates the profitability for a refiner to turn crude into gas, improved to $7.48 cents up 65 cents from the beginning of the week. For heating oil the crack spread tightened a bit but is trading at $10.49 cents. Improving margins hopefully will get refiners back in the game producing more product to meet what we hope will be an improving demand picture.

The API also reported that distillate stocks that include the all important heating oil component increased by 962,000 barrels. That wasn't supposed to happen. Hey maybe it wasn't that cold after all especially in the Northeast where the bulk of the heating oil is consumed. The API said product imports were up 1.4 million barrels a day. Crude Imports were up big as well rising according to the API by 1.4 million barrels a day. Of course with runs up, supply still fell by 2.3 million barrels last week.

These numbers are more bearish than indicated and if the Department Of Energy confirms this it may lead to some profit taking. I will be giving some instant reaction to the Numbers on the Fox Business Network right as the numbers come out.

Now despite the crude oil winning streak going up day after day and hitting a 15 month high, there has been more money made lately just playing the range. Yesterday, after trading in a range, crude oil became a market where the trade was to sell a new high and buy a new low. If the Department of Energy fails to wow us, we may see the same tight lazy range with an upside bias. The next big trending move in petroleum has yet to be established. Technically it looks like we may be on the verge of a major upside breakout but the less than enthusiastic trading mood seems to suggest the market is reluctant to make that next big move and we may need an event to get oil back to inspire it. Fundamentally the market is heavy.

Despite strong manufacturing numbers in the US and China and large factory orders with strong auto sales from Ford, demand hopes are rising. The negative drop in pending home sale most likely is temporary as the removal of the first time home buyer credit and the holiday probably slowed activity more than normal. Not only that, as bad as the pending home sales were, they are still better than they were a year ago at this time. The bottom line is that the economy is getting better. Demand will improve but we have ample supply. Interest rate expectations will help drive price as well as the value of the dollar. I have a hard time taking a long term position as events will dictate the trend but when this current uptrend ends, it will end badly. I am cautiously in a friendly position but am wary. The trend is your friend but sometimes your friends turn against you.

Natural gas is having a hard time getting over $6 even despite the cold.