Crude oil inventories approach near-term record

High prices are crimping demand for gasoline

U.S. crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.8 million barrels to 370.3 million barrels and are above the limit of the average range, according to data supplied by the Energy Information Administration.

Oil supplies now stand at the highest level in two years and are just shy of the near-term peak of 375.3 million barrels reached in early May 2009. Only during a brief period in 1990 did supplies surpass current level and approach 390 million barrels.

Meanwhile, gasoline inventories increased by 1.3 million barrels last week to 205.8 million barrels and are in the lower limit of the average range.



The national average retail regular gasoline price increased for the seventh week in a row to $3.965 per gallon on May 9, 2011, $0.002 per gallon more than last week and $1.060 above a year ago.

But over the last four weeks, gasoline demand has averaged nearly 9.0 million barrels per day, down by 2.4% from the same period last year according to EIA data.

The tremendous jump in gasoline prices from a year ago likely provides us the explanation for the demand destruction we are seeing, even as the economy has grown over the past year.

Though the U.S. is practically swimming in crude based on the latest EIA data, gasoline supplies are hovering near the bottom end of the range.

Refinery capacity at just under 82%, versus almost 89% a year ago, is playing a large role in the drop in gasoline production and relatively tight supplies and is probably responsible for the outsized jump in prices at the pump.

Currently, gasoline prices are just pennies below the July 2008 peak. At about $100 per barrel, oil is well shy of its record of $145.