Petrol prices at the pump have risen compared to last year, which has led to a decrease in demand for fuel as we approach the summer driving season. Additionally, investors in various markets are monitoring consumer behaviour to see if there are any indications of reduced spending.
Petrol demand is being closely monitored as a high-frequency indicator of consumer spending, according to Tyler Richey, co-editor at Sevens Report Research.
He mentioned that it was underscored in April. The Energy Information Administration released data indicating that the average daily supply of finished U.S. motor petrol for the week ending April 19 was 8.423 million barrels, marking the lowest weekly figure in two months.
In late April, U.S. economic data had been “coming in with a whiff of stagflation and the plunge in consumer demand for fuel amplified those worries,” said Richey.
“Worries that we could see a similar drop off in economic activity amid the onset of the long-discussed post-COVID-stimulus recession were recently reignited by the combination of stagflationary economic data and the high frequency drop off in gasoline demand,” he said
Request for data
During the four-week period ending on May 3, the average daily supply of finished U.S. motor petrol was 8.6 million barrels, which is a 4% decrease compared to the same period last year. This information was reported in the latest weekly report from the EIA, released on Wednesday.
According to Patrick De Haan, head of petroleum analysis at GasBuddy, weak demand can be attributed to the impact of inflation on consumers across various sectors such as grocery stores, theatres, hotels, and restaurants. It’s draining their motivation to leave.
Inflation has exceeded expectations, as the core personal-consumption expenditures price index rose at a 3.7% annual rate in the first quarter, following two consecutive quarters of a 2% rate of increase.
Fuel prices have been steadily increasing. According to data from GasBuddy, the average price for regular unleaded petrol in the U.S. was $3.641 per gallon on Thursday morning. That’s an increase of approximately 14 cents per gallon compared to last year.
According to Brian Milne, product manager, editor, and analyst at DTN, consumers expressed concerns about the persistent inflation pressure and elevated interest rates in April, as reported by MarketWatch. During times of financial concern, individuals often reduce their spending on non-essential items. Historically, this has resulted in a decrease in petrol demand.
Stock- and bond-market investors have observed indications of a growing cautiousness among investors when it comes to spending. Several companies, such as McDonald’s, Shake Shack, Wendy’s, Starbucks, and Yum Brands, reported disappointing first-quarter sales growth last week.
When we consider the broader perspective, it’s worth noting that the Dow Jones Industrial Average DJIA has seen a modest increase of 3.6% year-to-date, while the S&P 500 SPX has shown a more significant gain of 8.8% as of Wednesday.
Financial experts advised consumers to cut back on dining out to save money. They’re finally paying attention — and companies are shaken.
According to Milne, the decline in petrol demand can be attributed to the improvement in vehicle efficiencies and a decrease in consumer sentiment. Vehicle miles travelled have increased, yet petrol consumption is not keeping pace due to these efficiencies.
The most recent EIA report indicated a slight improvement in petrol demand on a week-to-week basis. The average daily production increased to 8.797 million barrels for the week ending May 3, compared to 8.618 million barrels the previous week.
The petrol supplied figure of nearly 8.8 million bpd showed a strong recovery, surpassing the four-week moving average of 8.53 million bpd. It also exceeded the average weekly rate of 8.57 million bpd in 2024, as reported by Richey.
Summer is here!
In the future, it will be crucial to monitor the weekly petrol supplied figure as an indicator of consumer demand for petrol. It is important to compare this figure with its four-week moving average to understand the underlying trend in fuel demand. Additionally, comparing it with the corresponding reporting week from the previous year will provide valuable insights.
‘If we see demand roll over again, expect recession fears to rise and volatility across asset classes pick up, including renewed pressure on oil prices now that the geopolitical fear bid has largely gone stale.’
Tyler Richey, Sevens Report Research
“Should demand decline once more, there may be an increase in recession concerns and a rise in volatility across various asset classes. This could also lead to renewed pressure on oil prices, as the previous geopolitical fear has lost its impact,” he stated.
Meanwhile, according to DTN’s Milne, it is uncertain whether or not weak consumer confidence will continue into the summer travel season.
According to him, consumers have been undeterred by the increased prices for vacations after the COVID-19 pandemic. There is a possibility of a similar occurrence happening again during the summer.
Meanwhile, according to Milne, the current high retail prices may have a lesser impact on road travel compared to previous times.
GasBuddy’s De Haan anticipates a decrease in demand this summer due to the impact of inflation on consumers. Consequently, there may be a possibility of petrol prices declining before Memorial Day. Memorial Day weekend typically signifies the beginning of the summer driving season.
According to De Haan, the average retail price for regular unleaded hit $3.69 a gallon on April 19. It’s possible that prices have reached their peak for the year at that level.
In the futures market, reformulated petrol for June delivery has experienced a significant 20% increase year to date, settling at $2.53 a gallon on Wednesday. This outpaces the 10% year-to-date rise in U.S. benchmark West Texas Intermediate crude, which saw its June contract settle at $78.99 a barrel on Wednesday.
If hurricanes disrupt the infrastructure in the Gulf of Mexico, the Atlantic hurricane season may lead to a temporary increase in retail petrol prices, according to the expert.
