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Gasoline Demand Rises, But Will Prices?

Supplies are greater now than at start of summer

By Mark Huffman
ConsumerAffairs.com

September 3, 2009

The government agency says total petroleum products supplied rose 1.2 percent to just under 20 million barrels a day. The headline number, however, was gasoline demand, which surged 4.1 percent to 9.49 million barrels. That was the strongest demand since May 22, just before the start of the summer vacation season.

The jump in demand led to a larger than expected draw down in inventories. Even so, gasoline inventories, which hovered near record levels over the summer months, remain high on a historical basis. In fact, DOE records show the U.S. has more gasoline on hand at the end of the summer than at the beginning. All things being equal, that should keep prices stable.

The increase in demand may be all the incentive futures traders need to bid up the price of gasoline, which has remained near its highs for the year over much of the summer, even though supplies have been plentiful. In fact, refineries have continued to operate as around 80 percent of capacity for much of the year, meaning they could be producing a lot more gasoline than they are.

The increase in demand comes at the end of the summer driving season and at a time when gasoline prices had finally shown some softness. Before the numbers came out, the average price of regular gasoline had dropped a couple of cents a gallon from the previous week.

Oil prices had also dipped significantly after reaching their high for the year in late August but could change direction if this demand trend continues. In Thursday's trading, October crude rebounded to $68.56 on the Chicago Mercantile.

Analysts interviewed by various media outlets offered differing explanations for the sharp increase in gasoline demand. Those who believe the economy is improving point to the statistics as another piece of evidence to bolster their case.

A year ago, gasoline prices were falling after peaking in July 2008 at more than $4 a gallon. Prices went into a free-fall in October after the onset of the credit crises, bottoming at about $1.62 a gallon in late December.

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