Gasoline prices surging.
The very same day this data was released was the day Jay Powell, "Fed chairman," implied the Fed would raise overnight rates more than expected, faster than expected.
I've maintained ever since beginning the blog, the best indicator of the US economy was gasoline demand. And by that metric, the US economy is on fire.
Compare gasoline / diesel demand in:
- Russia
- Europe
- Britain
This has to be terrorizing the Fed: US sees highest gasoline demand since at least 2017.
This is despite:
- massive EV penetration (needs to be fact-checked but that's what "everyone" says)
- CAFE standards that in some cases border on the absurd
- at least five oil-price shocks in recent history that supposedly resulted in demand destruction
Did we mention that gasoline prices are surging with $120 oil?
Demand destruction? What demand destruction?
The bigger concern is supply destruction (see earlier post).
But I digress.
I'm sure I must be misinterpreting the headline story.
Back to the things that put terror into the hearts of "Fed" members: US sees highest gasoline demand since at least 2017.
Greta's head is exploding.
More and more, the story is not "demand destruction," but "supply destruction."
- U.S. gasoline demand on Sunday jumped by 12.6 percent compared to the previous Sunday.
- U.S. gasoline prices fell slightly last week from the highs on March 11.
Not one percent or two percent or even five percent or ten percent, but almost 13 percent.
Trivia: the number page on the blog when one searches "demand destruction" was posted Saturday, April 23, 2011.
Demand destruction is an economic term used to describe a permanent downward shift in the demand curve in the direction of lower demand of a commodity such as energy products, induced by a prolonged period of high prices or constrained supply.
So, if US sees highest gasoline demand since at least 2017, does that change all those arguments about "demand destruction"?
Is this sort of like Hubbert's "peak oil theory" which has been clearly disproved?
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Finally, Summer
120 per barrel is about 3 bucks a gallon for crude. Then add in crack spread, station profit, delivery. North of 4 bucks a gallon. Then the Marathon refinery blast of the cat cracker, gonna be many months to fix that, likely a few hundred thousand bbls of refining offline. Guessing that the Marathon refinery feeds the colonial pipeline, so higher prices east of I81. With Biden administration hampering the upstream and midstream of oil business. Finally rig count has yet to recover from the 2020 Covid-19 crash.
ReplyDeleteAs always JMHO
Wow, great note.
Delete1. Add in federal and state taxes.
2. Los Angeles is now reporting average price for gasoline at $6.00 / gallon. I would assume diesel if 50 cents to one dollar more per gallon.
3. I-81. A most interesting interstate. May have to post a short note about it on the blog. Thank you.
Forgot about taxes, 18 federal, 36 state here in Maryland. Last Friday Maryland has a tax holiday on state gasoline tax for a month, so prices dropped 36 cents a gallon. I think that gasoline is lower cost here now than Texas.
DeleteSince my Dad and his brothers owned a full service gas station for a time, I can tell you the profit at the pump is minimal. They made their money in the repair shop attached to the building. They sold gas as a means to buy the next load of gas.
ReplyDeleteProfit came from repairs and now its the cookies and pop.
You are absolutely correct. I've read that the "margin" on a gallon of gas for a service station owner might be one or two cent per gallon. They made their money on volume, and cigarettes, pop/soda, snacks, etc., and in some places selling handguns. LOL.
DeleteWhich is why prices can jump overnight at your fav local pump. Cost go up, they have to cover with current profits to pay for next load of fuel. My folks operated at 5-7 cents/gal. And still had to float a bank loan more than once when prices got wonky.
ReplyDeleteIts a tough business to be in. Am glad I will not inherit it.
And then the EPA clean-up costs.
Delete