In the U.S., gasoline demand was the strongest in 2014 during the final full week of the year even though historically driving demand is greatest during the summer months, with demand during the fourth quarter averaging 90,000 bpd or 0.9% more at 9.11 million bpd than the June through August average.
In parsing gasoline data from the Energy Information Administration, implied demand, which refers to product supplied to the primary wholesale market, had their two strongest weeks in late December, with the third highest weekly demand rate occurring in late August. Moreover, four of the five weeks with the greatest weekly demand rate in 2014 were in the fourth quarter, arguing that low gasoline prices spur greater driving activity.
Retail gasoline prices are averaging more than $1 gallon less nationally than a year ago while down $1.40 or 40% from late June when the national average was $3.704 gallon. Slipping below $2.30 gallon on Dec. 29, the U.S. average could drop below $2 gallon during the first quarter.
The sharp price decline was spawned by growing oil production that not only has outstripped demand, but has created a growing glut of supply domestically and internationally. US crude imports continue to trend lower while oil product exports remain robust, including for gasoline exports, which averaged 354,000 bpd in December. Some of the crude that was previously shipped to the U.S. is looking for new markets, while tankers are again being used for storage, moored near key shipping ports and loaded with crude as they were during the Great Recession in 2009.
The plunge in crude oil prices joined by the abundance of supply has also prompted refiners to process more crude, with U.S. refiner and blender net production spiking over 10 million bpd in late December for the first time, EIA data shows. In late 2014, the EIA said spot gasoline prices, the primary wholesale market with rack postings the secondary wholesale market, are often the world’s lowest during fall and winter in the Midwest and Gulf Coast regional markets.
As the inventory bubble moves down the supply chain, the data on implied demand illustrates the change from a “just in time” inventory management strategy adopted by the US industry more than a decade ago and when the bull market in oil was in its early stages to “supply push” management. Akin with the adage “if you build it, they will come” dynamic, the added gasoline supply to the domestic market should continue to pressure gasoline prices in the near term while driving demand for the motor transportation fuel higher.