Thursday, July 10, 2008

Gas Use at Five Year Low but.....

The weekly report from the Energy Information Administration (EIA) was released yesterday, and the headline that was picked up by the media was that gasoline usage over the July 4th holiday hit a five year low, and dropped 3.3% from last year to 9.347 million barrels a day. This fits in nicely with my thesis that oil prices are ridiculously over priced, and was a source of considerable joy for me when I read it last night. The chart is below.

Now it is no secret that I am bearish on oil prices, and have received considerable contempt and scorn for this position. However, there was another nugget of data in the EIA report that was stunning and not supportive of my bearish position. It would be easy for me to ignore this data, as it seems that the media has, and just see what I want to see in the report, but then I would be guilty of what I frequently accuse oil bulls of doing. I try my best not to ignore data, or mine it to find want I want to find in it.

The EIA also reported that U.S. Crude Oil Production fell to 4.96 million barrels per day for the week ending 7/4/2008. On a four week moving average, production was 5.09 million barrels per day. This is the lowest production measured on a weekly basis since July 2006.

One component of my bearish thesis on oil prices is that domestic oil production will begin to move higher over the next few years due to all the exploration and development being done, and this data point would seem to contradict my position. Now it would be expedient for me to dismiss this as a one week aberration, or as some sort of holiday weekend related drop, but I will not do that and will take the data as it stands and incorporate it into my thinking on the oil supply and demand situation.

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