US Gasoline Demand Sends Mixed Signals

Gasoline market indicators, much like that cutie across the bar, are giving confusing and conflicting signs.

What happened: Reuters recently published a study of just how decidedly undecided the US gasoline demand forecast is for the remainder of the year.

A mixed bag of signals, including policy, economic, and consumer preference forces, led the US Energy Information Administration (EIA) to revise its estimates, yet again. The forecast has been revised every month in 2023 and changed from a decline in demand over the year to growth.

Context: US gasoline demand peaked in 2018 at 9.3 million barrels per day (mbpd). The EIA’s latest forecast has demand reaching 8.9 mbdp this year, just shy of 2018 highs.

With US drivers consuming ~9 percent of global crude oil, getting the forecast right is a little important for working out fuel prices at the global scale.

The mixed signals:

• Demand decrease: On average, the light-duty vehicle fleet in the US has increased its fuel efficiency from 13 miles per gallon (mpg) in 1975 to 26.4 mpg last year. The better fuel efficiency coupled with the growing EV sales means drivers can cover more miles with less gas.
   
• Demand increase: That said, the number of vehicles—gasoline, diesel, or EV—driving in the US has never been higher with consumers buying SUVs and pickups at record levels. Together, SUVs and pickups accounted for over 60 percent of new sales while those for smaller, more efficient vehicles fell to 26 percent, despite their higher fuel efficiency.

Zoom out: Forecasts for products like gasoline are crucial for both refineries and policymakers. If demand persists longer than expected, refineries may close capacity too early leading to high prices or shortages. Or, if demand drops earlier than anticipated, companies could face stranded assets.

It’s all about reading the signs just right for any hope of shooting a shot that lands.