Friday, March 11, 2016

Is surprisingly strong gasoline demand a sign of what’s to come this summer?

Big difference compared to high-demand 2007 is today’s lower prices

Drivers may be more eager than usual to fill up this summer.

The latest weekly decline in U.S. gasoline supplies wasn’t a surprise, but the strength in demand for the fuel at this time of the year is a shocker.
That means that even if pump prices nose higher by Memorial Day as some predict, stronger-than-usual driving demand could help sop up some of the excess domestic crude supplies.
“The last few weeks with impressive gasoline demand could be a harbinger of what’s to come for the summer-driving season,” said Patrick DeHaan, senior petroleum analyst at
‘The last few weeks with impressive gasoline demand could be a harbinger of what’s to come for the summer-driving season.’
Patrick DeHaan,
“Perhaps we’re underestimating consumption,” he said. “I expected this summer to be robust, but wow, this latest data makes me pause.”
On Wednesday, data showed that U.S. gasoline supplies dropped by 4.5 million barrels for the week ended March 4, according to the Energy Information Administration. It was the fuel’s third weekly decline in a row.
Supply drops are expected this time of year because it’s refinery maintenance season, a slower demand period in which refiners perform upkeep and change equipment to ready for more environmentally stringent summer gasoline grades. It typically peaks in April.
But the EIA report also showed that over the last four weeks, a key measure of demand known as motor gasoline product supplied was up by 7% year over year at more than 9.3 million barrels a day.
“The data shows strong gasoline demand that’s outpacing the 2007 and 2008 rates for this time of year, with 2007 the current record high in annual U.S. gasoline demand,” said Brian Milne, energy editor and product manager at Schneider Electric.
Usually, gasoline demand is weakest in January and February and increases as the weather warms once past maintenance season, he said.
These months are “the shoulder periods between peak heating demand during the winter and peak driving demand during the summer,” said Milne. “That hasn’t changed.”
What’s different this time around is that drivers are taking advantage of lower prices for gasoline.
“Affordability, and people … aware they’re spending much less to fill their tanks than they did a couple of years ago, [are] breeding an optimistic outlook that has propelled driving activity,” said Milne.
U.S. gasoline prices at the pump averaged at about $1.867 a gallon Thursday afternoon, according to That’s down more than 58 cents from the year-ago average.
But the low prices might not last for long. Here are the areas where on Thursday was seeing “significantly” higher gas prices compared to prior reports:
Milne said prices are now “on course” to move above $2 a gallon before Memorial Day.
“Gasoline demand appears to be among the heaviest, seasonally, that I’ve ever witnessed,” DeHaan said. “Couple [the] warmer-than-average temperatures in much of the country with relatively cheap gasoline and it’s a recipe to drive, apparently.”
And when gasoline RBJ6, +1.58%  is in demand, so is the crude oil CLJ6, +2.33%  that’s used to make it.
That’s part of the reason why crude-oil prices rallied this week to their highest levels of the year.
“Strong gasoline demand would definitely help shrink the oil-supply surplus,” said Milne.
But it would only help to a certain point. The market “would still need lower crude production, and it will take time as well to find a closer supply-demand balance,” he said.

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