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Weekend Stock Market Analysis

(7/20/13)

A lot of people are complaining about gas prices as currently the average price is around $3.65 a gallon depending on where you live.  First off lets look at a chart of Gasoline Sales versus the Average Price of Gasoline.  Notice Gasoline Sales (red line) have been decreasing rapidly since 2004 and are down over 50%.   Meanwhile the Inflation Adjusted Average Price of Gasoline (blue line) has been trending higher since 2000 if you ignore the volatility in 2008.

Furthermore there is no shortage of Gasoline as the Oil Refiners haven't seen a significant drop in the  Production of Gasoline.   

This is reflected in the Gasoline Inventories which despite being volatile at times generally range from 190 to 240 million barrels each week with the long term average (red line) around 210 million barrels.   Overall the Inventories have been basically above the long term average since 2010 and are similar to what was observed in the early to mid 1990's when Inflation Adjusted Gas Prices were around $1.50 a gallon.   

Meanwhile anyone who ever took a simple economics class in high school or college was taught  "If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price".  Thus one can conclude that Gasoline Prices should be much lower and that they are being kept artificially high.

Finally if we take a look at the long term chart of Gasoline Futures they have recently broken out of a Triangle pattern which suggests a possible retest of the prior high made in 2008.  Since there is roughly a 50 cent difference between Gasoline Futures and the price of gas that would lead to an average price above $4.00 a gallon at some point if the previous 2008 high were tested.   

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