I see gasoline prices rising even further despite this modest destruction of short- and long-term demand.
From Wolf Richter to WOLF STREET.
The price chaos that is taking place at the pump is causing some destruction of demand. We’ve been seeing clues. We are at the beginning of the driving season, but the demand for gasoline does not follow the classic pattern of a seasonal increase.
The EIA of the Department of Energy reported that gasoline consumption, 8.85 million barrels per day (four-week moving average) decreased by 2.7% over the same period in 2021, and 6.1 % compared to the same period in 2019. Consumption in 2022 (red line) does not follow the increase in summer driving: it has only increased by 1.3% since the beginning of March. But in May 2019 (gray), consumption increased by 5.2% compared to March, and in May 2021 (black), consumption increased by 11.9% compared to March.
Note that the EIA measures gasoline consumption in terms of barrels supplied to the market by refineries, blenders, etc., and not by retail sales at gas stations.
In October, November and December last year, gasoline consumption exceeded 2019 levels. It was when the gasoline price shock began to spread among consumers that consumption once received, but it has not yet had a big impact, and it seems that consumers are getting used to the pain and the destruction of demand has not gotten worse in recent weeks:
What consumers are facing at the pump is a majestic rise in gasoline prices, which included a small drop in April to confuse everyone and to dispel some false hopes that the price spikes were over. In May, price spikes hit new highs again. On Monday, the weekly EIA measure reached $ 4.59 per gallon of regular:
The destruction of long-term demand is happening, but it is a slow process.
The maximum years of petrol consumption were in 2016, 2017, 2018 and 2019, all around 9.3 million barrels per day, and a little more than in 2007, with a minimum of -6.3% in between. During the summer driving season, peaks reached 9.7 million barrels per day.
The years 2016-2019 may turn out to be the highest gasoline consumption in the United States. The current price hike is once again shifting vehicle buying patterns to cheaper vehicles, including smaller vehicles and hybrid engines, and we are already seeing signs of that. These changes in purchasing patterns have long-term consequences for gasoline consumption.
Legacy carmakers are finally launching electric vehicles, and while large-scale production is still plagued by a variety of shortages, especially the semiconductor shortage that affects carmakers in all their models. there is a high demand for electric vehicles and long waiting lists. The 1.44 million electric road vehicles in the U.S. account for only 0.5% of the 280 million vehicles in operation, but electric vehicle sales are booming and ICE vehicle sales are falling, and every percentage gain in the share of electric vehicles represents a visible drop in gasoline consumption.
And the wave of office workers working from home during the pandemic has become a kind of permanent trend to work at least part of the time from home, with daily commutes no longer a daily occurrence. , but it can be something two. or three times a week, which drastically reduces gasoline consumption for those households, especially households with long commutes, and enough of these households to do so will eliminate some visible demand from the table.
Destruction of demand in the short term.
Rising gasoline prices, when they get enough in their pocketbook, trigger some changes in what people do: they start driving less, they start taking it easier to save gas when they drive, and they start prioritizing the cheapest vehicle. from your home. They can cancel road trips and minimize driving during the holidays.
But these are short-term effects, things that people could do this year or this month, but once they get used to the higher gasoline prices, and maybe get an increase that will make these high gasoline prices be less toxic, some of these changes. will relax.
Demand destruction as people return to public transportation?
How much will gas prices have to go up before people return to commuter trains? Commuter train systems in the United States have suffered a massive loss of passengers during the pandemic as people began driving to work or staying home to work.
So is the current price increase enough to get people back on the trains? We look at the BART trains in the San Francisco Bay Area. Here, drivers are facing gasoline prices hovering around $ 6, bridge tolls that have risen and traffic congestion almost as bad as before the pandemic. That would be a great incentive to return to the BART.
So let’s see. Yes, in March, when gasoline prices rose to new highs, the number of BART users rose 32% to 3.34 million trips, from 2.52 million in February. And in April, when gasoline prices fell slightly, the number of users rose slightly to 3.38 million. And now in May, when gasoline prices at many gas stations exceed $ 6 a gallon, well, we’ll have to wait until the May data comes out. I expect another jump in the number of users, similar to March. Thus, the destruction of the demand for gasoline by people returning to mass traffic is occurring, but only in small steps, and the number of users remains 67% below the range of 10 million before the pandemic:
I see gasoline prices rising despite this modest destruction of demand.
There is a modest destruction of demand for short-term changes in driving behavior, for long-term changes in the types of vehicles people buy, and for people returning to mass traffic in small steps. But this is not a collapse in demand, but a modest decline that will last for years.
And the industry can find out, too, and they will continue to reduce investment and the ability to cope with this slowdown in demand. And nothing changes. If it were a sudden collapse in demand, it would be different. But that doesn’t happen at these prices.
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