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December 9, 2008

U.S. Gas Demand Rising to Mid-2008 Levels

According to this week’s latest MasterCard SpendingPulse data, U.S. retail gasoline demand is back to levels seen earlier this year. Lower prices have apparently driven up demand, as Economics 101 says it will, demand destruction and depression be damned.

So, why haven’t global oil prices followed suit, especially given production cutbacks, current prices dropping below break-even for major suppliers, and so on?

Some will blame speculators, and they have a point. Certainly it shows why supply/demand is only part of the equation in this market, as is true in all markets, of course. But sentiment has become badly negative on oil, and many institutional players and hedge funds have exited the market, many of the former having only entered months ago.

[Update] Of course there are many other things at work here, including demand in places other than the U.S., but it is still worth mulling what is happening here. It is partly about technicals, partly supply/demand, and also expectations and derivatives of demand.

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