President Biden recently boasted on Twitter that US gas prices have been falling for 50 days straight, noting that this was the fastest drop in a decade. The president added an infographic of sorts to his tweet informing us that 50 percent of gas stations were selling gasoline for $3.99 or less a gallon. What he neglected to mention is that gasoline demand has been behaving very unnaturally for this time of year.
Standard Chartered this week released a commodity alert saying that this year, the driving season in the US never really materialized. The report noted substantial drops in demand in both June and July, adding, however, that the recent drop in prices should result in a pick-up in demand this month.
Much has been made of the cure for higher oil prices still being higher prices. It looks like this might have happened in the US as gas prices earlier this year reached the highest level in several decades. And the national average is still above $4 a gallon, according to to AAA.
It’s no wonder then that, with inflation on the rise, people are choosing not to drive, which is affecting demand. According to StanChart data, in July, US gasoline demand fell 7.6 percent on the year to 8.592 million barrels a day, which the report said was the lowest demand level since 1997, except for the strong close of 2020.
The Energy Information Administration, however, had a different interpretation of the data. According to that interpretation, the previous gasoline demand figure was up to 1 million bpd. lower than demand during the July 2020 lockdown.
Bloomberg’s observation on gasoline demand trends caused a stir on Twitter, prompting many analysts to weigh in on the discussion of whether this year’s driving season may have been worse for gasoline demand than the shutdown. of the summer of 2020.
Different data sets were noted in the discussions, such as the one from GasBuddy, which reported a slight increase in demand last week, for example. Patrick DeHaan by GasBuddy indicated the different methodologies for measuring demand and a very, perhaps the most important, difference in these methodologies.
The EIA uses what it calls implicit demand, or, according to its report, “product supplied” by refiners to fuel retailers, while GasBuddy works with the amount of gasoline actually sold by service stations. Some accused the EIA of skewing the numbers. Others indicated that the weekly demand numbers are flawed and that mistakes have also been made in the past, leading to an incorrect estimate of July demand.
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As the debates continue, one thing no one is arguing about is that US drivers are driving less, and even the 50-day price drop in a row hasn’t been enough to motivate them to start driving more, than during the season. when everyone travels more, usually .
StanCart analysts noted in their report that “the average US retail gasoline price has fallen more than $80 per gallon (16%) since the mid-June peak, which should support demand in August. . However, we believe that the theory that the US market will support gasoline prices of $5 per gallon for an extended period has now been tested to its destruction.”
In fact, whether or not demand for gasoline was lower this July than it was in July 2020 is not nearly as relevant as the answer to the question of why, despite such a steady and continuing fall in prices, Americans are not They drive more.
The most obvious answer would, of course, be inflation. Economists, government officials, and journalists are debating the definition of a recession, whether or not the presence of a recession on America’s books is important to nothing, and if the current situation is not a disguised form of economic growth.
Meanwhile, the real prices of real goods and services are rising. As prices rise, consumption begins to decline. The longer prices rise, the more consumption will fall, unless incomes adjust accordingly, which doesn’t seem to be happening yet.
Gasoline, as a fundamental product that almost everyone uses in one way or another, is no exception. May and especially June saw all-time highs in gasoline prices. It was a matter of time before these record prices began to affect demand, leading to lower consumption and consequently lower prices.
So it is questionable how much credit the Biden administration could reasonably claim for the 50-day drop in gasoline prices. They didn’t exactly open more refineries or stimulate more oil drilling, and even if they had, it would have taken time to bring that new production to market.
It was largely market forces that led to the lower prices. And also to lower consumption which may or may not have been even lower than consumption during the summer 2020 lockdown. Now, with lower prices, demand is likely to start to pick up, as life data suggests. real by GasBuddy. So the bigger question would be how long it will be before prices start rising again amid extra strong exports of both gasoline and diesel.
By Irina Slav for Oilprice.com
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