Demand for oil is an important variable in gauging its future market direction. Since the demand for gasoline in the US alone makes up almost 10 percent of global demand, it is important to track gasoline consumption in the country.
In the US, nearly half of the demand for refined oil products is for gasoline. Americans consumed nearly 8.8 million barrels per day out of almost 19.8 million barrels per day of refined products across the world last year, according to the US Energy Information Administration.
Memorial Day, May 30, usually marks the start of the summer driving season in the US, which means there will likely be a continuation of the steady rising trend for gasoline. Driving season officially ends on Labor Day on Sept 5.
However, this year, gasoline consumption in the US is not following the traditional strong seasonal growth seen in previous years.
According to the EIA, the average amount of gasoline consumed per day during May was around 8.9 million barrels, 2.7 percent higher than the same period last year and down by 6.1 percent from May 2019.
Between March and May, demand increased by only 1.3 percent this year, which is less than the increase of 5.2 percent between May and March in 2019 and 11.9 percent between May and March last year.
From a price point of view, gasoline retail prices rose by a strong 48 percent between March and May of this year while marginally declining by 1 percent between May and March in 2019 and a jump of 44 percent between May and March last year.
Surely, pent-up demand from the pandemic has distorted the relationship between prices and gasoline consumption. However, demand increased despite relatively higher retail prices.
In the fourth quarter of last year, there was a large rise in gasoline consumption compared to the same period in 2019. Retail prices have been increasing gradually since the beginning of this year, in line with the recovery in oil demand, supply limitations and geopolitical tensions in Europe.
Gasoline consumption per day exceeded 9.1 million barrels in May 2021, while it hovered around 8.8 million barrels per day in May of this year, a decline of around 300,000 barrels per day year on year.
Since the beginning of the year, American drivers have been paying rising retail prices at the pumps, despite a small decline in April. In May, retail gasoline prices continued to climb and hit new highs. According to the EIA, prices hit $4.59 a gallon during the last week of May. Gasoline prices continued to rise by 29 cents in the first week of June, taking the average retail price of gasoline in the U.S. to a record $4.92 a gallon.
Average daily gasoline consumption peaked between 2016 and 2019, at around 9.3 million barrels per day. Most of this consumption was during the summer driving season, when demand for motor fuel approached nearly 10 million barrels per day.
Retail prices will be crucial in determining the level of gasoline consumption over the rest of this year. Over the longer term, if prices stay high, there is likely to be a shift toward more efficient vehicles as well as electric and hybrid cars, which will affect gasoline demand over the medium to long term.
Sales of electric cars have fallen slightly in recent years due to semiconductor shortages, with supply chains remaining stretched following the health crisis. The potential demand for electric vehicles remains strong, with people reportedly queuing up to purchase them.
However, the number of electric cars on US roads is still small. There are currently around 1.5 million electric cars in the US, which is only 0.5 percent of the 285 million vehicles on American roads. But sales are surging, while sales of internal combustion engine cars are easing.
Additionally, the trend driven by the pandemic of working from home has continued. Many people now work from home at least part of the time and commuting to the office is less frequent, possibly only two or three times a week, reducing household gasoline use, especially for those with a longer commute.
Short-term changes in driving behavior due to the current high prices will affect US gasoline consumption, although these have been modest so far. In the long term, changes in the types of vehicles people drive and a gradual return to public transportation will all affect gasoline demand.
• Hassan M. Balfakeih is an oil demand specialist and former chief oil demand analyst at OPEC Secretariat.
