Oil and Gas

Parsing Data, Events to Understand Trend in US Gasoline Demand

Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

The gasoline futures market on the New York Mercantile Exchange dropped back a nickel from a fresh 11-month high of $3.1520 gallon reached June 23, but remain over $3 gallon while the US retail price average at $3.704 gallon will continue to advance into July as pass through costs move through the supply chain. The dynamic events in the Middle East that erupted earlier in June continue to bolster global oil prices, lifting gasoline values as oil traders position against a possible disruption of supply from the region.

The United States is getting involved, planning $500 million to support Syrian rebels and sending 500 military advisors and missiles to Iraq, while armed drones stand ready to protect US forces. US airstrikes against the Islamic State of Iraq in the Levant, including inside Syria, are being pushed by US allies in the region, although the Obama administration remains reluctant. The US involvement against ISIS, although limited, was enough to help slow the upside move in oil prices, with the ICE Brent crude contract trimming $2 from its June 19 high of $115.71 bbl.

The rapidly evolving events in the Middle East, along with the Ukrainian crisis and lost exports from Libya due to internal fighting illustrate the geopolitical risk premium embedded in crude oil values, with the market easily moving in either direction depending on how these events play out. Brent crude could top $117 bbl as quickly as it could test technical support below $110 bbl.

Nearest delivered Reformulated Blendstock for Oxygenate Blending, the NYMEX gasoline contract, was lent support in late June from expectations travel over the coming July 4th Independence Day holiday weekend would increase nearly 2% from a year ago and 14% from the Memorial Day weekend. AAA forecasts 34.8 million Americans would journey 50 miles or more from home by automobile during the holiday weekend despite climbing gasoline prices.

US consumers are more confident, although uncertainty does blur forward visibility on how enduring this trend will be, with personal spending still sluggish, while the Bureau of Economic Analysis reported June 25 the US economy contracted 2.9% during the first quarter. A brutal winter was blamed for much of the shrinking economy, but the mixed signals cloud the veracity of longer term economic forecasts which direct gasoline demand.

A study recently released by the US Conference of Mayors and reported on in the Wall Street Journal found economic growth would continue at a slow pace overall, although metropolitan areas would experience a better expansion rate than lesser populated regions of the country. Moreover, the growth would be strongest in the South and West, highlighted by Texas and Florida. Upper New York State fares the worst.

The Mayors’ report coincides with a trend seen in vehicle miles traveled, with the most recent data showing a 0.1% decline in VMT in the Northeast in April contrasted by a 1.9% increase in the South-Gulf and 2.3% gain in the West. Of course, city dwellers make greater use of mass transit, although commuting from the suburbs could boost passenger vehicle travel.

 

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