US Gasoline Demand Has Fallen Below 2020 But There Are Far More Questions Than Answers

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Today’s big energy headline is that US implied demand for gasoline has fallen below 2020 levels (based on a 4-week average).

Gasoline demand

EIA, HFIR

For those of us who already leave the house and drive, you probably can Remember, traffic wasn’t nearly as bad compared to 2020. However, Energy Information Administration (“EIA”) data seems to indicate that gasoline demand is now lower than that for July.

This report brought many more questions than answers. For starters, US gasoline storage is still at its lowest level in the last 5 years for this time of year.

gasoline storage

EIA, HFIR

Second, the EIA’s monthly data on gasoline demand has been trending above weekly numbers since January 2022.

Weekly Gasoline Demand vs Monthly Demand

EIA, HFIR

As you can see in the final monthly data, there is a possibility to see a large discrepancy between the weekly and monthly data.

Third, there is a growing discrepancy between the US’s implied monthly oil demand with respect to the week.

Monthly vs. Weekly Demand

EIA, HFIR

Finally, despite all the madness and volatility in the EIA’s weekly US oil data, US Total Liquids with the Strategic Petroleum Reserve continues to trend downward, albeit at a slower pace.

total fluid

EIA, HFIR

The same can be said of US crude with the Strategic Petroleum Reserve.

Raw with SPR

EIA, HFIR

What does all this mean?

While we want to be as empirical and unbiased as possible, it is very difficult to take this gasoline demand number at face value. Monthly data indicates that the Energy Information Administration has been underestimating US oil demand since April, and the latest May figure supports that assertion. Then there is the fact that despite the dire demand numbers, overall product storage continues to decline, and even given weak demand for gasoline, distillates and jet fuel, total shows 3 absolute lowest stocks over the past five years for this time of year.

product storage

EIA, HFIR

Again, we are not trying to invent some revolutionary narrative and argue that demand is not weak. In fact, we were the first to point out that US oil demand was surprisingly downside. But at some point, you just have to call it a spade. We think the demand is weak due to the price increase, yes, there is no doubt about that. But is the demand for gasoline less than 2020? No, and so we’re probably somewhere between the 2021 and 2020 demand numbers, but we’re leaning towards the upside.

Why do we care?

We wrote at the beginning of the year that the OECD demand is the difference between really high oil prices and just high oil prices. The OECD demand is the delta between us which is withdrawing 1.5+ mb/d or 0.5 mb/d. For oil bulls, the performance of US oil demand is a key component of knowing how the rest of the world is doing. If US oil demand really underperforms that much, we should see global oil stocks build up like crazy.

To put this in context, US oil demand is about 3% lower than demand in 2021 on a 4-week average basis. If you stabilize that for global oil demand, that’s roughly 3 million barrels a day lost. If this is true, we should be seeing a rise in global fluids like crazy.

But according to the latest satellite data from Kpler, this does not appear to be the case.

worldwide

Kepler

Again, I’m not trying to make up some massive bull argument. I simply show you the data I see.

Then there is the issue of refining the margins. If demand is so terrible, we should see refining margins pull back.

3-2-1 crack

Barchart.com

Obviously this does not happen.

All this only leaves us with much more questions than answers. Quite frankly, the market needs answers because it’s in the process of trying to figure out where the lower band is. For that to happen, we need good, reliable oil price data to know where demand starts to fall. Without it, we will swing from highs to lows and back again without a clear range.

Now there is a way to check all this, but it will take some time. We can wait for the monthly data to come out, but in order to validate the July data we have to wait until the end of September. The market won’t, so in the meantime, it will likely swing excessively to the low side until demand responds, and then bounce from there.

Unfortunately, I think this is where we’re headed because without reliable data, there is no other way for the market to find out. So he will pay both sides until he gets the answer he wants.

And while I hate to say this, we need more data to confirm the latest data. Our view is that this EIA data is likely to be off, but only time will tell. In the meantime, there are much more questions than answers.

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