By Brian Milne, Refined Fuels Editor for Telvent DTN
Wholesale gasoline prices across the U.S. fell sharply through early July amid a shift in market sentiment that has dulled enthusiasm that a robust economic recovery was set to begin in the coming weeks, which, in turn, suggests demand for gasoline will remain tepid this summer. In fact, preliminary data released by the U.S. government shows gasoline demand so far this summer has failed to outpace rising production and increased imports that has prompted supply building, which is the opposite of what typically occurs during this time of year.
Demand for gasoline peaks during the summer months as Americans take to the highways for vacations. Implied gasoline demand is running ahead of last year at this time, but the 2008 consumption rate was constrained through conservation as retail prices had spiked to all-time record highs and due to the impact of the then unknown U.S. recession that had entered its eighth month.
The key catalyst for the change in psychology was data released in late June and early July that shows the American consumer is not as confident as many investors and speculators thought they would be by this time as we advance into the second half of 2009.
This shift has been on display in the stock market, with the S&P 500 and Dow Jones Industrial Average both sliding from June highs, knocked lower primarily by ongoing weakness in the jobs market.
As noted previously, historically climbing unemployment has cut into demand for gasoline as less people make the roundtrip from work to home. There had been expectations that the stressed consumer would offset the loss in that demand by taking vacations.
However, data is showing that concern over household finances is prompting more Americans to save, reducing their discretionary spending including summer road trips.
Moreover, the rapid increase in gasoline prices in the second quarter has siphoned more cash from consumer pocketbooks, reducing personal discretionary spending that has a direct impact on gasoline demand.
Retail prices have likely hit their highs this summer barring an unforeseen supply disruption. The pass-though savings from the wholesale markets will gradually work its way to retail pumps nationally. However, the lows are also in, and consumers should not expect pump prices to fall below $2 gallon.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at [email protected].