The price of oil is a highly discussed topic, with many individuals closely monitoring it. One derivative of oil, gasoline, has seen a concerning trend in its price increase.
According to a recent report by Bloomberg, gasoline has risen over 20% in value this year, surpassing the gain of crude oil.
At the beginning of the year, Brent crude was being traded for approximately $78 per barrel. This week, the international benchmark, which now includes a U.S. crude grade, reached $83 per barrel.
In contrast, gasoline began the year at less than $2.50 per gallon and has now exceeded $2.90 per gallon, with the potential to reach $3.
Governments worldwide are worried about this trend because gasoline and diesel are crucial elements in causing inflation. As the price of fuel increases, the cost of everything else rises due to transportation costs.
Although diesel is more commonly used for transporting goods, gasoline is more popular among regular drivers. Gasoline demand is closely monitored by analysts as an economic indicator that provides insights into the state of the economy. Currently, the data suggests that gasoline demand is healthy. However, supply is falling short of expectations, causing concern about inflation despite the efforts of central banks in Europe and North America to control it through rate hikes.
In the US, the Federal Reserve recently announced a 25 percentage point hike in the benchmark interest rate. Gasoline prices also rose, with the national average increasing by 4% in a single day. According to the EIA, gasoline stocks are 7% below the five-year average for this time of year, and oil drillers are not increasing production.
In Europe, governments had to subsidize fuels last year due to the energy crisis and the embargo on Russian crude and fuels. Although criticized by transition advocates, these subsidies were implemented to prevent protests by millions of drivers whose living standards depend on affordable fuel.
Meanwhile, the European Central Bank has hiked interest rates to the highest level in over two decades. However, gasoline prices are not expected to decrease anytime soon due to insufficient supply.
It has been reported that the catalytic converter may be out of commission for several weeks, resulting in a noticeable increase in gasoline prices.
The situation is exacerbated by the ongoing protests in France and the recent shutdown of Shell’s Pernis refinery in the Netherlands due to a leak.
These incidents, along with the closure of refineries in recent years, have led to a tight supply situation on both sides of the Atlantic.
Despite discussions and potential bans on gasoline-powered cars, fuel consumption in France, Germany, Spain, and Italy continues to rise. The Russian fuel embargo has resulted in a shortage of feedstocks needed to produce gasoline on the continent.
In contrast, Chinese refineries are producing significant amounts of gasoline and diesel.
Although China is the largest market for electric vehicles, it is also a significant market for non-electric vehicles, leading to an increase in fuel demand.
The current trends in gasoline supply and demand indicate a prolonged tight supply and high prices, which may result in uncontrollable inflation, despite the efforts of central banks. Unfortunately, these efforts also contribute to higher living expenses.
On the bright side, inflation can lead to reduced consumption of all goods. However, there is a risk of slipping into a recession.
Gasoline Long (Buy)
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