Thursday, January 7, 2016

Gasoline Demand -- January 7, 2016

If I was (were?) allowed only one data point to track the health of the US economy, I would select "gasoline demand." (I've said that at least once before on the blog.)

In the most general of terms, in the US (and probably around the world), there is "mandatory gasoline demand" and "discretionary gasoline demand." I assume economists have different and more precise terms.

Mandatory gasoline demand is the "minimum" amount of gasoline required by homo sapiens to do their daily business: commute to work, work, commute to school, errands (grocery shopping, for example).

Discretionary gasoline demand includes vacation travel, unnecessary errands, cruising, holiday lights viewing, Christmas shopping, teenage date nights.

Through August of last year (2015) the increase in gasoline demand year-over-over (2015-over-2014) was quite remarkable. But then, on September 17, 2015, I noted that gasoline demand plummeted.  That was a warning sign.

Gasoline demand "recovered" in October/November 2015 (compared to the previous year) but then the gap narrowed again in mid-November, 2015. Again, another red flag, perhaps.

By late November, 2015, there was a real surprise: gasoline demand in November, 2015, fell below that of November, 2014.

The most recent data, released yesterday:

Some data points to consider when discussing this:
  • the price of gasoline is at an all-time low; John Kemp says "real price of gasoline" is the lowest since 2009; when adjusted for inflation, January 2015 prices for gasoline were actually lower than they were during the depression (January, 2015, was a year ago; price for gasoline is even lower now)
  • gasoline mileage per US vehicle has not changed in the past year (2015/2014); if anything there is a trend toward more SUVs and pickups
  • we are being told that the job growth in the US is very, very robust (reported today, again); more job growth, more gasoline demand, especially on the west coast; maybe not so much in NYC where everyone takes a subway and there are no cars
With gasoline this inexpensive, the sudden (and striking) decrease in gasoline demand seems to speak volumes about the health of the US economy.

John Kemp noted that today:

It is interesting that John Kemp in his Reuters article suggested that the huge rise in US gasoline stocks reported most recently is simply an anomaly of year-end shenanigans.
The 10.6 million barrel jump in U.S. gasoline stocks last week, reported by the Energy Information Administration on Wednesday, sent gasoline futures tumbling 4 percent and intensified the selloff in oil prices.
Estimated gasoline consumption was also down 1.2 million barrels per day (bpd), over 13 percent, compared with the prior week, adding to market alarm about the health of fuel demand.
But most of the increase in stockpiles and apparent drop in fuel consumption was likely due to year-end seasonal quirks rather a sign of slackening consumption.
The latest data on gasoline consumption, production and stocks are for the week ending on Friday Jan. 1 and straddle year-end.
In the previous five years, from 2010/11 to 2014/15, gasoline stocks increased by an average of more than 6 million barrels over the year end period, with increases ranging from 3.6 million to 8.1 million barrels.
But let's look at the figures again, or as they say in the Hillary camp, let's parse that article:
  • the jump this past week was 10.6 million bbls; let's round that to 11 million bbls
  • the jump for similar weeks straddling the old year/near year averaged 6 million bbls
  • 6 million bbls is not half of 11 million bbls, but it's awful darn close
  • the range over the past five years has been 3.6 to 8.1 million bbls (rounding: 4 to 8 million bbls)
  • the 11 million bbls exceeds anything we've seen in the past five years, and not by a trivial amount (double-digit jump this year; single-digit jump all previous years)
  • in fact, a jump of 11 million bbls is almost three times the smallest jump
I think John Kemp could have come to different conclusions had he wanted, but he was writing for Reuters.

If he is correct, then we should see the graphs reverse over the next few months, and everything will again be rosy. 

I'm not holding my breath. Based on George Soros' most recent comments, I don't think ol' George is holding his breath either.

One last comment on the John Kemp article in Reuters. Regardless of the jump in gasoline stocks and blowing it off simply as an anomaly, there is that pesky other little item, noted in the second paragraph of his article, which he does not address again:
Estimated gasoline consumption was also down 1.2 million barrels per day (bpd), over 13 percent, compared with the prior week, adding to market alarm about the health of fuel demand.  
If the 13% doesn't get your attention, the "impossible to miss" arrow on the graph above might help.

I don't know about you, but a 13% decline in gasoline demand during non-peak driving season is alarming. In the non-peak driving season, gasoline demand is driven mostly by "mandatory gasoline demand," not "discretionary gasoline demand."

Oh, as long as I've gone this long, let me continue to pile on: this winter has been incredibly warm, incredibly seasonable (yes, I know there are regional exceptions, but they were regional, and they were short-lived) making driving a pleasure. One cannot argue -- at least I cannot argue -- that bad weather drove down gasoline demand. If anything, this wonderful weather -- no doubt a by-product of global warming -- has made for wonderful driving.

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