(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: tmsnrt.rs/2nRQtxk
By John Kemp
LONDON, Aug 21 (Reuters) - Rising fuel costs have dampened gasoline demand from private motorists in the United States, leaving the market relying on continued economic and freight expansion to boost oil use.
U.S. traffic volumes were up by just 0.3 percent on a seasonally adjusted basis in the three months from April to June compared with the same period a year earlier, according to the Federal Highway Administration.
Traffic growth has slowed from an annual rate of between 2 percent and 3 percent through most of 2015 and 2016, when gasoline prices were low and falling (“Traffic Volume Trends,” FHA, August 2018).
Traffic growth has been correlated with changes in gasoline prices for the past quarter century and recent fuel price increases have resulted in a predictable slowdown (tmsnrt.rs/2nRQtxk).
Retail gasoline prices are up by more than 55 percent from their cyclical low in February 2016, according to the U.S. Energy Information Administration.
Traffic volumes have levelled out despite continued strong growth in economic output, incomes and employment, indicating that motoring demand has been hit by rising fuel prices.
Slower traffic growth has been mirrored in flattening gasoline consumption, with sales to domestic customers at or slightly below prior-year levels for most months so far this year.
Between March and May, the most recent three-month period for which data are available, gasoline supplied to the domestic market was marginally down from the same period in 2017.
The Energy Information Administration is now forecasting gasoline consumption will be essentially unchanged in 2018, down from predicted growth of around 30,000 barrels per day (bpd) at the start of the year (“Short-Term Energy Outlook”, EIA, August 2018).
If the prediction proves accurate, it will be the second year of little or no growth, after gasoline use surged by 140,000 bpd in 2016 and 257,000 bpd in 2015, corresponding with the slump in oil prices.
Lack of growth in gasoline contrasts with distillate fuel oil, where consumption between March and May was up by almost 75,000 bpd compared with 2017, spurred by rising industrial output and strong growth in freight.
U.S. freight volumes were up by more than 8 percent year-on-year in June, according to the U.S. Bureau of Transportation Statistics (“Transportation Services Index”, BTS, August 2018).
Manufacturing output was up by 2.8 percent in the year to July while mining output, which includes oil and gas drilling, rose by 12.9 percent (“Industrial production and capacity utilization”, Federal Reserve, August 2018).
Distillate fuel oil and jet fuel accounted for essentially all the growth in fuel consumption in the United States in the March-May period.
EIA forecasts distillate consumption will increase by 170,000 bpd in 2018, while jet fuel will be up by another 30,000 bpd.
Freight growth within the United States remains robust, but in the rest of the world has showed signs of slowing since the start of the year.
Flat-lining domestic gasoline consumption coupled with softness in international distillate growth helps explain why benchmark oil prices have pulled back from highs set in May.
Prices are falling to buy back some demand growth, or at least prevent any more being lost.
- Fuel markets confirm global growth slowdown (Reuters, Aug. 16)
- Global economic outlook is darkening (Reuters, Aug. 14)
- Rising oil prices put demand destruction back on the agenda (Reuters, May 2) (Editing by Mark Potter)