Who said that America's gas guzzling days were over? Oil prices soared coming within a whisper of $100.00 a barrel on strong economic data that might suggest that perhaps consumers are getting back on the roads.

For the first time in days the heating oil market fell back versus RBOB gasoline as the spread came back in as a strong retail sales number seems to suggest that gasoline demand will improve. If people are shopping more, then it is likely they will start driving more. That optimism was confirmed by a better than expected gasoline demand report from MasterCard SpendingPulse. The report showed that gasoline demand actually increased 133,000 barrels per day. That was an increase of 1.5% bringing demand to an improving 8.798 million barrels per day. That translates to 61.585 million bbl of gasoline sold at gas stations, an increase of 928,000 bbl from the previous week. Still despite the increase, gas demand is still 4.4% versus a year ago.

We also saw a substantial drop in the Brent versus West Texas Intermediate spread WTI oil spread. This is something I said would happen and what I called the Dead Spread when on October 25th I was trying to explain the impact of the death of Moammar Gaddafi on oil. I said that the Brent/WTI spread almost became a household word in the conflict between Gaddafi loyalists and the Libyan rebels. Libyan crude is of a very high quality oil that found its niche in Europe, subbing for the production challenged North Sea Brent crude. The loss of that crude created a void because European refiners, accustomed to a regular flow of light crude, failed to have the type of units needed to refine those heavier grades. The loss of that crude caused the Brent/WTI spread to go to a record high. I said that coincidentally or not, the spread has come and would continue to come in after Mr. Gaddafi's demise. I said that because there was not a lot of damage to the oil infrastructure and the expected return of North Sea oil production, the spread would come in. We are ready seeing the benefits of increased Libyan from Libya's giant Elephant oil and gas.
Yet despite all the bullish news for oil and the renewed strength in WTI as well as option expiration, oil prices fell short of $100 a barrel.

Still we see a break at the pump for gas prices as refiners kick up production to meet tight distillate supply and weaker Brent crude costs. And a report from the Federal Trade Commission say that it is supply and demand driving gasoline prices, not speculators! Told you so!

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Phil Flynn
Research Division
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Chicago, IL 60634
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