GasBuddy Analyst Talks Battered Oil Industry, Why Gasoline Prices Aren't Lower

Patrick DeHann, head of petroleum analysis at GasBuddy.com, joined Benzinga’s PreMarket Prep show this week to discuss the state of the U.S. and global oil markets.

A pricing war between Saudi Arabia and Russia, travel shutdowns associated with the coronavirus (COVID-19) outbreak and U.S. crude oil storage capacity approaching 100% have driven the United States Oil Fund USO down 79% in the past three months.

Oil Demand Tanking

Even though people have been staying at home, volatility in the oil market has driven traffic on GasBuddy’s platform much higher as drivers track the action in the oil market, DeHann said.

“We’re all eagerly looking for these cheap and low prices that we haven’t seen in some cases since 2003.”

GasBuddy is tracking real-time demand, and distillate demand is between 35% and 45% lower than it was in February, which is typically a seasonally soft time for demand, he said.

Most recently, DeHann noticed a shift in the market.

“We’ve seen distillate demand fall along with gasoline. Now we’re in a situation where, because of the rebound, distillate inventories have actually been surging and gasoline inventories, the API reported [on Tuesday], that gasoline inventories actually dropped 1 million barrels in the last week. So refineries made some huge cutbacks and perhaps they got a little but too much off gasoline production.”

See Also: Here's How Much Investing $100 In The USO Oil Fund In 2010 Would Be Worth Today

Disconnect Between Oil, Gasoline

Even though oil prices dropped well below $20 per barrel in recent weeks, many Americans have noticed that gasoline prices have stabilized at levels much higher than they were the last time oil prices were this low.

DeHann said that dynamic is driven partially by the fact that demand for gasoline is so low that gas stations don’t believe dropping prices even lower will boost demand.

“Basically, they’re trying to get by by having a double or triple margin than they’re used to, but that’s to offset the huge drop in demand.”  

Drivers need to remember that the prices of oil and gasoline are highly correlated, but they're not 100% correlated, DeHann said.

Upstream Vs. Downstream Impact

Different segments of the oil industry are weathering the storm differently, DeHann told PreMarket Prep.

Upstream oil companies are exploration and production companies that actually bring the oil out of the ground. Midstream companies are typically involved in transportation and storage, and downstream companies include refiners and retailers, such as gas stations.

“I think the retailers are holding on for dear life, but keep in mind a lot of the retail companies like Marathon Petroleum Corp MPC, which owns Speedway, margins are still relatively good across the board for retail. It’s the refiners, it’s the upstream operators, it’s the oil producers that are getting hit the hardest,” he said.

“Traditionally, as you get closer to the wellhead, the better you’re doing. Now, it’s the opposite.”

See Also: USO Short Sellers Have Made $347M In Profits And Are Adding To Their Positions

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.