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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Strong Demand For Gasoline Shifts Momentum To Upside

April Unleaded Gasoline surged this week, indicating that prices may have reached an important low. The trend is still down, however, momentum has shifted to the upside.

“We are in mid-February , and 45 out of 50 states have a gas average below $2 per gallon, said Jeff Pelton, a GasBuddy.com petroleum analyst. “Sadly, these incredibly low gas prices won’t be here forever, as refineries talk of production cuts.”

The recent price action in the futures market seems to be suggesting the same.

A gasoline glut has pushed prices down, with inventories in the Midwest reaching their highest level in 23 years. Cheap crude and high output from refineries has helped create huge inventories in the region, but this may be coming to an end if the seasonal factors start to gain control.

With crude oil prices showing signs of forming a support base, gasoline prices may be ready to take off to the upside because of seasonal demand and expected reductions in refinery production.

This week, the U.S. Energy Information Administration reported a 3.5 million barrel increase in crude oil supplies for the week ended February 17. This was slightly above the estimate, but well below the American Petroleum Institute’s 7.1 million barrel increase reported for the same time period on February 23.

In the U.S. however, total production fell by 33,000 to 9.1 million barrels a day last week, the EIA report said. According to the data, output has fallen by more than 130,000 barrels a day over the last four weeks and at that rate, the annualized rate of reduction would be at over 1 million barrels a day.

The news about the drop in total production may have underpinned crude oil prices this week, but the size of the total supply may have put a lid on any rallies. Since crude oil is in a position to close higher for the week, we have to conclude that the main trend is down, however, momentum is pointing up. This is helping to produce the choppy two-sided trade.

Comments by Saudi Arabia and Iran also helped limit price gains. The Saudi’s said they would not cut production. Iran called the proposal to freeze output at January production levels a “joke”. In the meantime, Venezuela and Qatar along with Russia and the Saudi’s will continue to try to hammer out the details of some kind of agreement.

At this time, volatility traders are probably the biggest winners with crude prices seemingly…




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