As Gasoline Prices Rise, Demand Destruction Spreads, With Long-Term Implications

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Wait…gasoline exports are increasing.

By Wolf Richter for WOLF STREET.

With the average gasoline price topping the $5 mark on Monday, up 63% from a year ago, according to EIA data, and having topped the $4.20 mark for the first time in mid-March, people are already driving less, and households are choosing their most fuel-efficient vehicle. Shopping habits are already shifting in favor of fuel-efficient small vehicles, hybrids and electric vehicles, except they are sold out, while pickup trucks and large SUVs have started to pile up on dealer lots.

The destruction of gasoline demand has already set in. In October, November and December of last year, gasoline consumption exceeded the levels of the same period three years earlier, in 2018. In the first half of this year, for each week, consumption was lower only in the first half of 2019, the last year before the pandemic turns everything upside down.

The EIA measures gasoline consumption in terms of barrels supplied to market by refiners, blenders, etc., not in terms of retail sales at gas stations.

Gasoline prices started to rise in 2020, reached multi-year highs in May 2021 and continued to rise. Then in 2022, prices started to soar…

…and seemingly hit the magic number somewhere along the line, and suddenly gas mileage started dropping well below the same weeks in 2019, on a four-week rolling average basis.

The summer driving season has started in the United States and gas mileage has increased this year, but more slowly than in 2019.

The red line in the graph below covers the period from June 2021 to June 2022. The gray line covers the same weeks in 2018 and 2019. Note how from June to December 2021 consumption followed consumption quite closely in during the same period three years earlier. , in 2018.

During the week ended June 10, consumption amounted to 9.02 million barrels per day (four-week moving average), down 5.4% compared to the same week in 2019:

What everyone wants to know now is this: When will the demand destruction be big enough to cause gasoline prices to drop?

It is complicated by the large-scale exports of gasoline by the United States to other countries, currently operating at over 900,000 barrels per day, which represents approximately 10% of US domestic consumption.

Even if consumption in the United States continues to decline compared to 2019, foreign demand – higher exports – could offset it. So we don’t want to hold out hope that the destruction of domestic demand by disgruntled and frustrated American drivers alone can put a damper on rising prices.

But if demand destruction in the US is large enough and sustained enough, and backed by demand destruction in other countries, there could finally be an impact.

Exports are highly seasonal, typically peaking during the winter when demand is lower in the United States, then drops sharply in the spring and summer when demand peaks in the United States. But this year, in the last three months, exports have been 20-40% higher than the same period last year, in the height of the driving season:

In the long term, gasoline demand in the United States is already falling. But it will be a slow process. The current consumption level of 9.02 million barrels per day was first reached in July 2000. Gasoline consumption on an annual basis peaked in 2007 and declined for years, then increased again and reached this level again in 2016, 2017, 2018 and 2019.

Rising prices and the consumer shift toward smaller vehicles, hybrids, and electric vehicles (including large electric vehicles, such as pickup trucks) that are underway will cause gas mileage to in the future will decrease in the United States.

But wait…the industry is already preparing for it. The growthless nature of US gasoline demand is nothing new. Investments in refineries have been put on the back burner, and many oil industry executives have pointed this out. The entire industry struggles to maintain a tight supply to manage declining gasoline consumption over the decades and maximize profits during this time.

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