Are Rising Gas Stocks Bearish for Refinery Equities?
While the Congress grilled Hammrin’ Hank Paulson, we took some time to dig deeper into the EIA weekly data to gauge whether or not higher gas prices may derail the economic recovery. Reviewing the EIA weekly petroleum data we find that crude stocks continue to fall, while gasoline and diesel are well supplied.
source: EIA
Although crude stocks are still well above the average range they have declined considerably since May. We wrote in May that anticipation of demand for gasoline coupled with a rising crack spread would cause refineries to ramp up production.
source:EIA
The chart above illustrates that since May refinery inputs have been rising steadily. Retail sales data showed consumers are not buying as much gas. The most recent data on gasoline station sales indicated that while gasoline sales increase 4.9% that did not keep up with the 6.9% increase in retail gas prices.The result is higher gasoline stocks.
source: EIA
It is for this reason that we shall turn away from being long refinery equities.
Disclosures: none
