Federal data shows that gasoline supplied to the market, frequently referred to as implied demand, surged in late February, holding above the five-year average for the final two full weeks last month even though retail gasoline prices were setting a series of new highs. It was the first time in 2011 that the demand indicator topped the five-year average, although it did occur during the final three weeks of 2010.
In fact, those three weeks in December appeared to be the making of a new trend in increased gasoline demand, with only eight other weeks in 2010 topping the five-year average, based on data from the Energy Information Administration (EIA). Data released on March 2 from the Department of Transportation’s Federal Highway Administration adds credence to that view, reporting a 0.6% hike in vehicle miles traveled in December compared with year prior, with total VMT in 2010 at three trillion miles last year, up 0.7% compared with 2009.
Americans haven’t driven this many miles since before the financial crisis hit full bloom during the Great Recession, which greatly reduced VMT. The climbing mileage while the number of those unemployed gradually decline is yet another sign that the US economy has moved from recovery to growth. Also supporting this view, the Department of Labor said March 4 that the national unemployment rate inched below 9% to 8.9% with 193,000 jobs added in February, although those participating in the workforce continue to slide.
Implied demand was pressured in January through early February, but this coincided with widespread snowstorms across the country that reduced roadway travel. Indeed, those bullish on oil in late 2010 and early this year were pointing to an expanding economy that they said would drive higher the consumption rate.
However, that was before the wave of revolution captured the prolific oil producing region in North Africa and the Middle East. Crude oil prices have spiked above $100 barrel and have held there amid lost supply in Libya, a member of the Organization of the Petroleum Exporting Countries, and what could potentially be a prolonged civil war. Loss of supply from another oil producer could spike oil prices much higher, while surplus supply of oil held in commercial inventory would be drawn down. It’s unclear if the antigovernment revolution will expand, and what long-term consequences it may have on the oil market.
The spike in crude prices has dramatically hiked retail gasoline prices, which continue to climb. Earlier in the year, many industry analysts were scoffing at the idea of $4 gallon gasoline in 2010; now the question is not if the national average will hit that psychological figure but when.
High retail prices have historically limited demand in gasoline. So, do the figures in late February mean a sea change in this corollary? Likely not, albeit several economists have suggested that the US driver can absorb higher gasoline costs better now than in previous years.
Likely, the sharp jump in implied gasoline demand, which is up 0.8%t this year through Feb. 25 compared with the same period in 2010, represents a behavioral reaction by consumers that anticipate even higher gasoline prices to come. In short, the recent data might show that consumers are topping off their tanks, attempting to get in front of climbing gasoline prices as fighting in Libya intensifies. If this view is correct, implied gasoline demand will be limited in the coming weeks when we usually see the early signs of higher consumption with warming weather as we move from winter to spring.
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 15 years as an analyst, journalist and editor. He can be reached at [email protected].