By Brian Milne, Energy Editor for Schneider Electric
Implied gasoline demand in the U.S., which refers to product supplied from the primary market, dropped 206,000 bpd to 9.104 million bpd during the week-ended May 30, according to the Energy Information Administration, with the week profiled, including the Memorial Day holiday weekend.
The Memorial Day weekend kicked off peak driving demand, so the decline might suggest lackluster gasoline consumption for the summer months. However, that fails to consider the weekly demand rate was the third highest of calendar year 2014 to date, and followed a three-year high week prior at 9.31 million bpd.
The data illustrates supply chain dynamics at work, with higher implied demand during the week heading into the three-day holiday linked to forward inventory positioning to address the expected increase in drivers.
The trend is observed in the five-year average, with implied demand then flattening in June before ticking higher in July. The five-year average considers the final six months of the Great Recession, which ended June 30, 2009 per the Bureau of Economic Analysis, and the slow recovery since. Based on this observation and understanding, the weekly implied demand data for gasoline in May argues for robust consumption of the road transportation fuel over the summer months. It doesn’t suggest, however, a return to spiking demand as seen in 2007.
There have been eight weeks out of 22 in 2014 when implied demand for gasoline has topped the five-year average, including the most recent three weeks. With the exception of one week mid-April, implied demand has consistently been above the comparable week in 2013 during the second quarter. After five months of data, the EIA indicates implied demand is 1.8% higher for the period than in 2013, averaging 8.653 million bpd. Based on June data for 2013, the year-on-year growth rate should widen sharply, with gasoline demand constrained through most of the second quarter 2013.
Jobs data helps explain the improving consumption rate, with the Department of Labor June 6 reporting 217,000 new non-farm jobs created in May, with the United States now having recovered all the jobs lost during the recession. Still, the U.S. economy is not the same as it was before the Great Recession, with the labor participation rate having tumbled since the economic contraction to levels last seen in the late 1970s.
A plethora of factors, including an aging population that drives less and a younger generation that cares less than their parents about getting behind the wheel of an automobile have worked to lessen demand for gasoline. So has higher fuel prices that have prompted more sales of alternative fuel vehicles while auto-manufacturers produce vehicles with greater mileage efficiency, pushed by CAFÉ mandates.
Since the Great Recession, annual changes in gasoline demand have varied regionally, with the more heavily populated Northeast and Mid-Atlantic states experiencing flat to lower demand while in Texas, for instance, gasoline demand has expanded. Increased urbanization is one data point for lower demand in the Northeast for instance, while a rising population in Texas boost vehicle miles traveled in the Lone Star state.
The EIA’s U.S. retail price average for all formulations of regular grade gasoline reached a five-week high and the second highest mark for 2014 at $3.69 gallon on June 2. That high could hold for the next few weeks, with gasoline futures—Reformulated Blendstock for Oxygenate Blending—on the New York Mercantile Exchange sliding to a $2.9202 gallon three-week low on June 5.
The lower valued futures contract is pressured seasonally, usually dipping from May highs before trending higher in July and August. International crude prices, best reflected through the Brent futures contract that trades on the ICE platform, have also declined on easing geopolitical worries over the Ukraine crisis.