Preliminary data from the Energy Information Administration shows gasoline demand in the United States dropped 9.3% to a six-month low during the week following Thanksgiving Day, a busy travel holiday, tumbling from the second highest weekly rate of demand for 2014.
Gasoline supplied to the primary wholesale U.S. market slid 876,000 bpd to 8.549 million bpd during the week-ended December 5, the lowest rate of implied demand since early April, and the first week in which gasoline supplied to market fell below 9.0 million bpd since late October. The string of five weeks with implied gasoline demand over 9.0 million bpd was the longest for calendar year 2014, sparking discussion that low gasoline prices were increasing consumption.
Research has shown U.S. consumers react to gasoline prices by driving less when they are high and increasing road trips when they decline. The U.S. retail gasoline price average has declined for ten consecutive weeks, and are down $1.034 or 27.9% gallon from their 2014 high reached April 28 to a nearly five-year low at $2.679 gallon, and are still headed lower.
The elasticity in fuel prices were identified as oil shot threw $100 bbl and stayed there, crimping household budgets and prompting behavioral changes, including less driving. The high gasoline price environment that has only recently receded also pushed consumers to look to more mileage efficient vehicles, with a recent survey by the National Association of Convenience Stores indicating four out of five buyers of alternative vehicles buy these vehicles to save money on fuel.
Amid the crash in U.S. and global oil prices, which continue to look for a bottom, there have been expectations that consumers would drive more, boosting gasoline demand. Fitch Ratings issued a news release earlier this month saying the drop in oil prices joined by a strong expansion for the U.S. economy might spur greater transportation volume in 2015.
Indeed, November auto sales surged to 17.2 million, with analysts linking the strong sales report to low gasoline prices that they say engender a greater desire to buy a vehicle. Moreover, with the drop in fuel prices, consumers were also less concerned with fuel economy, with sales of pickup trucks and SUVs which use more fuel climbing. Statistics from University of Michigan Transportation and Research Institute colleagues Michel Sivak and Brandon Schoettle showed mile per gallon efficiency ratings for new light duty vehicle sales reached a record high in August at 25.8mpg, but have since declined to 25.3mpg.
There are a number of factors that affect the amount of driving U.S. consumers conduct, including a change in behavior displayed by the Millennial Generation—those born between 1983 and 2000. Millennials, wrestling with higher vehicle ownership costs and student debt obligations, have shunned driving. They have moved into the cities, stay in school longer, and are getting married later in life. Vehicle miles traveled by Millennials plunged 23% between 2001 and 2009.
Also, despite the slight decline in greater vehicle efficiency in recent auto sales, U.S. policy executed through CAFÉ regulations guarantee automakers would continue to reengineer vehicles to improve energy efficiency.
The most recent dive by implied gasoline demand is also the result of supply stockpiling ahead of a holiday. The EIA’s product supplied to market data shows how much product was pushed into the primary wholesale market, not end-user demand, which takes months to compute. Suppliers will stage supply closer to retail outlets ahead of holidays when they expect demand to be strong, allowing for quick refills. Frequently, the forward staging of inventory is more than actual consumption, prompting a steep drop off, which is what might be reflected in the most recent weekly report. More data’s needed to identify whether the advent of lower gasoline prices would continue to push consumption higher as seen earlier in the fourth quarter.