The recent jump in gasoline prices to nearly four-year highs is starting to erode U.S. gasoline demand relative to last year as the summer gasoline season approaches, according to Genscape Supply Side Weekly Gasoline Demand Report data. Diesel demand, however, has expanded relative to 2017 in the second quarter, according to Genscape Supply Side No. 2 diesel data, aided by continued growth in the U.S. economy.
U.S. average regular gasoline rack prices hit $2.29/gal on May 23, the highest levels seen since October 2014 and up over $0.50/gal since the lows of February, according to Genscape Supply Side data. This rise in rack prices has mirrored the rally in front-month CME RBOB futures, which settled at $2.2603/gal May 22, $0.59/gal stronger than the lows of February 12. A rally in crude oil futures, rather than strong gasoline fundamentals, has underpinned the strength in gasoline prices, as front-month CME light sweet crude (WTI) futures have strengthened over $14/bbl since February to settle at $72.093/bbl on May 22.
To evaluate gasoline demand, Genscape examined the four-week rolling average for its Weekly Gasoline Demand Report (WGDR), an estimate of U.S. gasoline demand published on Mondays that is comparable to the U.S. gasoline product supplied number published by the EIA on Wednesdays. This rolling average shows the evolving trend in underlying gasoline demand and smooths out any short-term fluctuations. A comparison of Genscape’s WGDR estimates and Weekly EIA Products Supplied for U.S. gasoline on a four-week rolling average basis results in an R-squared value of 0.923 for 2017 and 0.939 for 2018.
An analysis of Genscape WGDR rolling average estimates shows that gasoline demand started to dip below 2017. Genscape levels starting week ending March 30 saw rack gasoline prices rally. The four-week rolling average for the Genscape WGDR for the week ending May 18 was 9.59mn bpd, down 1.67 percent from the same week in 2017. By comparison, Genscape WGDR gasoline demand was as much as 2.78 percent above 2017 levels earlier in the year (week ending February 16), when average rack regular gasoline prices dipped to just $1.78/gal.
Diesel demand, on the other hand, showed growth relative to 2017 in both estimates based on Genscape Supply Side data and EIA Monthly Prime Suppliers through week ending May 18. The likely driver behind this year-over-year growth is the U.S. economy, as ULSD consumption is linked to commercial trucking. The U.S. Bureau of Economic Analysis reported in April its advance estimate of first quarter real GDP growth of 2.3 percent annually. According to the GDPNow forecast from the Federal Reserve Bank of Atlanta's Center of Quantitative Research, annualized real GDP growth, in the second quarter, is estimated to be 4.1 percent as of May 16.
The latest data from EIA Prime Suppliers for March shows total U.S. ULSD demand at 3.86mn bpd, an increase of 3.2 percent from the same month in 2017. Genscape’s estimate of monthly Prime Suppliers is showing a similar trend for April, with last month’s ULSD demand expected to be 3.86mn bpd, up 5.4 percent from the previous year. Genscape’s estimate of May Prime Suppliers for total U.S. ULSD (based on balance-May Supply Side data) is 3.99mn bpd, up 0.31 percent from 2017. This estimate of EIA Prime Suppliers for ULSD is based on Genscape Supply Side daily rack activity data for No. 2 diesel and its linear relationship to monthly EIA Prime Suppliers for ULSD.
Genscape’s Weekly Gasoline Demand Report provides a total calculation of the U.S. gasoline consumption based on Genscape’s Supply Side Monitor hourly data. This calculation is sourced from actual rack activity, not estimates or formulas. The report allows users to anticipate demand based on actual secondary to tertiary demand measurements of volumes headed to gasoline retail filling stations. Click here to learn more about our Weekly Gasoline Demand Report.
Genscape's Supply Side Monitor and Analyst provides insight into PADD and rack city-related volumes and average prices for the wholesale transactions of refined products. Analysts and traders can leverage this information to make more accurate analysis and better-informed trading decisions. To learn more, or to request a trial of Genscape's Supply Side Monitor and Analyst products, please click here.