What’s really going on with the demand for gasoline?

President Biden recently vaunted on Twitter that gasoline prices in the United States fell for 50 days in a row, noting that it was the fastest drop in a decade. The president added some sort of infographic to his tweet telling us that 50% of gas stations were selling gas for $3.99 or less per gallon. What he forgot to mention is that gasoline demand is behaving very abnormally at this time of year.

Standard Chartered issued a commodity alert this week saying that this year’s US driving season has never quite materialized. The report noted substantial declines in demand for June and July, however, adding that the recent drop in prices should lead to a recovery in demand this month.

There has been a lot of talk that the remedy for higher oil prices is still higher prices. It looks like it may have happened in the United States, as gasoline prices earlier this year hit their highest level in several decades. And the national average is still over $4 a gallon, according at AAA.

No wonder then, with raging inflation, people are choosing not to drive, which affects demand. According to StanChart data, in July, U.S. gasoline demand fell 7.6% on the year to 8.592 million barrels per day, which the report said was the level of demand. the lowest since 1997, except for the heavy confinement period of 2020.

The Energy Information Administration, however, had a different interpretation of the data. According to this interpretation, the gasoline demand figure above was 1 million bpd lower than demand during the July 2020 lockdown.

Bloomberg’s observation of gasoline demand trends caused a stir on Twitter, prompting many analysts to weigh in on whether it’s possible this year’s driving season could have been worse for the city. gasoline demand than summer 2020.

Different datasets have been noted in the proceedings, such as that of GasBuddy, which reported a slight increase in demand last week, for example. Patrick DeHaan of GasBuddy Noted the different methodologies for measuring demand and one very, perhaps the most important, difference between these methodologies.

The EIA uses what it calls implicit demand or, according to its report, the “product supplied” by refiners to fuel retailers, while GasBuddy works with the amount of gasoline actually sold by filling stations. Some have accused the EIA of skewing the numbers. Others Noted that the weekly demand figures are wrong and that mistakes have also been made in the past which led to the wrong July demand estimate.

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As the debates continue, one thing no one discusses is that American drivers are driving less, and even the consecutive 50-day price drop hasn’t been enough to motivate them to start driving more – than during the season. where everyone travels more, normally.

StanCart analysts noted in their report that “the average U.S. retail gasoline price has fallen more than USc80 per gallon (16%) since the mid-June peak, which should support demand in August. However, we believe the theory that the US market will sustain gas prices of $5 per gallon for an extended period of time has now been tested to destruction.

Indeed, whether or not gasoline demand was weaker in July than in July 2020 is not as relevant as the answer to the question of why, despite such a stable and continuous price decline, Americans don’t drive anymore.

The most obvious answer would, of course, be inflation. Economists, government officials and journalists debate the definition of recession, whether or not the presence of a recession on the books of the United States is pertinent to anything, and if the current situation is not a masked form of economic growth.

Meanwhile, the real prices of real goods and services are rising. As prices rise, consumption begins to fall. The more prices rise, the more consumption would fall unless incomes are adjusted accordingly, which does not yet seem to be happening.

Gasoline, as a commodity that almost everyone uses in one form or another, is no exception. In May and especially in June, gasoline prices reached all-time highs. It was only a matter of time before these record prices started to hurt demand, leading to lower consumption and, consequently, lower prices.

So one wonders what credit the Biden administration could reasonably claim for the 50-day drop in gas prices. They haven’t exactly opened more refineries or stimulated more oil drilling – and even if they had, it would have taken a long time to bring this new production to market.

Market forces have largely driven prices down. And also to reduce consumption which may or may not have been even lower than consumption during the summer of 2020. Now, with lower prices, demand will most likely start to pick up, as actual data from GasBuddy suggests. The more important question then would be how long it will take before prices begin to rise again amid extra-strong gasoline and diesel exports.

By Irina Slav for Oilprice.com

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