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BofA Stunned By Drop In Gasoline Demand: ‘Where Is Driving Season?’

IMAGE: Kiplinger

By Tyler Durden | 8 July 2017

ZERO HEDGE — Exactly six months ago, when oil bulls still held on to some fleeting hope that OPEC may somehow stabilize the crash in oil prices despite the shift in marginal oil production from low-cost OPEC producers to US shale (a hope which is now gone as the just disclosed letter from Andy Hall demonstrates), Goldman noticed something troubling: an unprecedented collapse in gasoline demand. As the firm’s energy analyst Damien Courvalin said on February 8, when discussing the 6% fall in US gasoline demand, such a plunge “would require a US recession” and add that “implied demand data points to US gasoline demand in January declining 460 kb/d or 5.2% year-on-year. In the absence of a base effect, such a decline has only occurred in four periods since 1960 during which time PCE contracted.”

Now, 6 months later, the situation is very much different: with the US now inside peak summer driving season, the cyclical drivers behind gasoline supply and demand are vastly different, and yet something has remained the same: gasoline demand in the US simply refuses to rebound, surprising analysts by how weak it is. So weak, in fact, that Bank of America has released a note which, like Goldman half a year ago, reveals confusion about why — if the economy is indeed strong —  demand hasn’t kept up and has prompted BofA’s energy analyst Francisco Blanch to ask “where is the driving season?” and, more specifically, “is this year’s driving season over before it began?”

Here’s why some of the biggest banks continue to be amazed at the relentless failure of gasoline demand to validate an economic recovery, courtesy of BofA:

 Gasoline demand is extremely price-elastic

In a U-turn from the last two years, when demand growth for gasoline was running at phenomenal speed, gasoline consumption in the Atlantic Basin has fallen by 1% on last year. In the US, lower demand growth seems largely a function of higher retail gasoline prices, underscoring how extremely price elastic oil demand is (Chart 1). Annual growth in miles driven has slowed to 1.5% from 3.4% in the same period last year. Higher prices are turning people back on to smaller and more fuel-efficient cars, reviving the well-established trend prior to 2015. Sales growth for SUVs, which averaged 7% YoY in 2016, has now slowed to 2%, allowing fuel efficiency gains in the US fleet to come through more forcefully (Chart 2). More recently, slowing employment growth, as well as a slowdown in construction activity, may have also played a marginal role.

 

Is this year’s summer driving season over before it began?

But the latest weekly data is somewhat disconcerting. Despite a sequential pick-up, gasoline demand is 180 thousand b/d, or 1.8%, down on the same four-week period last year. Gasoline demand in the US tends to reach a peak around the July 4th weekend, when Americans drive for pleasure, and then declines sharply between mid-August and late September, which is what creates the seasonality in the gasoline futures curve. But, increasingly, one has to wonder whether the summer driving season is already over before it has even begun (Chart 3)? Indeed, RBOB gasoline relative to US diesel prices has collapsed in recent weeks and is now trading near parity (Chart 4).

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  • 200 Years Together

    I doubt this greatly. Airlines suck harder today than ever before and gas is cheaper than a mofo in Texas (I just paid $1.80 a gallon). I see more trucks on the road and new trucks being bought every day. I can tell this because I subconciously track the number of late model silverados, fords, and nissans on the road since they all recently had model changes. The previous models themselves would not have even been 8 years old if bought in the first year of production. But, what I am seeing is people trading in our buying the latest model and moving from their truck that is at max 5 years old to the latest in Chevy/Nissan/Ford. Ram has yet to really update their truck so it is harder to distinguish the number of new ones on the road. The percentage of chevy (13) Ford (15) Nissan (15) trucks that are on the road is decreasing and the number of chevy (14+) Ford (16+) Nissan ((16+) trucks is going up as most truck drivers dont swap out the truck for an suv or car. Gas is cheap, will be cheap and consumers are buying more of it.