Gasoline Prices Pressured by Weak Demand

By Brian L. Milne, Energy Editor, Schneider Electric

Wholesale gasoline costs moved lower coming into the second week of December, reflecting sliding values in spot and futures trading that will also prompt another decline in retail prices, which the Energy Information Administration (EIA) last said averaged nationally at a $3.394 gallon five-month low.

The U.S. retail average for regular grade has fallen in seven of the last eight weeks, and is down 45.6 cents or 11.8% since Oct. 8 when the string of declines began.

View Schneider Electric’s Weekly and Historical Gasoline Price Index.

Weighing on gasoline values is weak demand while supply is building, with inventory levels bolstered by a return of refining units shut during seasonal maintenance. The refinery run rate surged above 90% of operable capacity for the first time since late August during the week-ended Nov. 30, with Gulf Coast refiners operating at a 95.2% run rate. Gasoline stock levels have increased nearly 12 million barrels during the second half of November to end the month at a 7-1/2 month high.

Meanwhile, gasoline demand has held below the five-year average for every week but one in 2012 when it matched the historical average in August. Pre-positioning supply in front of the Thanksgiving holiday had pushed implied demand figures, which measure the amount of product sent to market, to summer levels. During the holiday period however, implied demand tumbled to a first quarter pace, when demand is weakest.

During the first 11 months of 2012, preliminary data show gasoline demand down 299,000 barrels per day (bpd) or 3.3% versus the comparable year-ago period at 8.652 million bpd. Five-year average demand for the January through November period is 9.124 million bpd.

Gasoline demand for December over the most recent five years has averaged 9.089 million bpd, hinting that gasoline sold through the balance of 2012 could tick higher. January and February are historically the weakest months of the year for gasoline demand.

The demand data is at odds with a lower national unemployment rate, which the Department of Labor reported at a 7.7% nearly four-year low in November. Gasoline demand and the employment picture have a close relationship, so the better-than-expected improvement in the jobs picture last month should have come with greater demand.

In early November, the Northeast was still reeling from Hurricane Sandy, with recovery efforts ongoing, which likely reduced gasoline demand for the heavily populated region. However, the Labor Department said the storm had no effect on its monthly survey. Meanwhile, while saying 146,000 new jobs were created in November, the Labor Department also revised down new job totals for August and September by 49,000.

One contributing factor for lower gasoline demand is there are more fuel efficient vehicles on roadways that are reducing the gasoline burned daily, with that trend to continue. Yet, the jobs data remains a relevant indicator for gasoline demand, and the recovery in both the jobs picture and the U.S. economy remains sluggish.

Part of the reason for the decline in the national jobless rate is because more people are dropping out of the workforce. In its monthly report, the Labor Department also said the civilian labor force participation rate fell 0.2% to 63.6% in November, its lowest rate since 1981. Less people commuting to and from work means less gasoline demand. Moreover, concern over a job could prompt closer scrutiny over discretionary spending by consumers that, in turn, leads to less gasoline demand.

About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 16 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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