Investors have been keeping an eye on changes in gasoline demand in the U.S., since the summer driving season starts over the three-day Memorial Day weekend. So far, demand has been surprisingly low.
For drivers who are filling up for family road trips, that may be good news. But there are some longer-term, maybe permanent, and somewhat worrying factors that have been changing how much gas Americans use.
“Fears of inflation have caused U.S. gasoline demand to drop in early 2024, as people look for ways to cut back on spending as they expect the prices of other household goods to rise,” said Gary Cunningham, director of market research at Tradition Energy.
A weekly report from the Energy Information Administration released Wednesday shows that the average amount of finished motor gasoline supplied over the past four weeks, which is a good indicator of demand, was 8.9 million barrels per day (bpd) in the week ending May 17. This was 1.8% less than the same time last year. That’s the last demand report from the government before this weekend, which is usually the first weekend of the summer driving season.
The gasoline demand indicator went up from 8.875 million bpd to 9.315 million bpd last week, which was good news. However, it was still down from 9.437 million bpd a year ago, according to EIA data.
The low demand could be because of the weather, the price of gasoline, or “other things that are budget concerns for consumers.” It could also be because fuel efficiency is still getting better, with the rise of electric vehicles (EVs) playing a “small role,” according to Jeff Lenard, spokesman for the National Association of Convenience Stores (NACS), a trade group that represents the convenience and fuel retailing industry.
He also said that hybrid and work-from-home arrangements have made people less likely to commute, which has also led to lower gas demand.
When asked if people are driving less, Lenard told MarketWatch that the first few weeks of summer driving season would “paint a clearer picture.”
Call for destruction
As of April, the NACS State of the Industry summit heard from Denton Cinquegrana, chief oil analyst at the Oil Price Information Service (OPIS), a Dow Jones company. He talked about how gasoline’s share of total U.S. fuel consumption is expected to steadily fall through 2050.
The U.S. Department of Transportation told Cinquegrana that gasoline’s share of fuel use in the U.S. will drop from 97.3% in 2025 to 95.16% in 2030, 84.03% in 2040, and 59.64% in 2050.
Based on data from 2022 vehicle registrations, he told MarketWatch that EVs may get rid of about 1% of the need for gasoline.
Lenard from NACS said that the highest level of gasoline demand was in 2018, when it hit 9.3 million bpd. Since then, it has gone down.
As a hybrid work environment has become the norm for many commuters across the country, Lenard said, “fuel efficiency has gone up and commute times have gone down.” He said that if a driver cuts their commute by one day a week, that’s already a 20% cut for them. That has a “real effect on demand” because it affects a lot of workers.
He said that fuel efficiency has probably been an even bigger reason for low gas demand. To back this up, he pointed to data from the U.S. Environmental Protection Agency (EPA) that showed the average fuel economy for passenger vehicles made in 2022 rose by 0.6 miles per gallon to a record 26.0 miles per gallon.
According to the 2023 EPA Automotive Trends Report, fuel economy for new cars has gone up 35%, or 6.7 miles per gallon, since the model year 2004. It was said in the report that most automakers have made improvements to fuel economy and carbon dioxide emissions over the last five years.
Fears of inflation
People are worried about inflation, which makes them want to buy more gasoline. However, Cunningham from Tradition Energy pointed out that airfares are still high, which could make more people drive for vacations.
As a result of higher prices, more people will choose to drive instead of fly this summer, which will be a “relatively strong one for gasoline demand,” he said.
A survey of GasBuddy’s fuel savings platform users found that 76% of Americans plan to take a road trip between Memorial Day and Labor Day weekends. This is up 18% from 2023. 49% of travelers plan to drive five hours or more to get where they’re going. The average traveler has two road trips planned.
At the same time, the survey showed that costs are a big part of summer travel this year, with 63% of those who answered saying that cost was the most important thing to them when planning trips. 46% of people surveyed said that high gas prices this year have changed their travel plans. The survey also showed that “few” Americans are considering buying an electric vehicle to save money on gas. Only 15% of those surveyed were thinking about doing so.
Because of this, GasBuddy thinks that the national average price of gas will stay around $3 for most of the summer.
As of Wednesday afternoon, GasBuddy said that a gallon of regular unleaded gas cost $3.604. This is down 6.9 cents from a month ago but up 8.1 cents from a year ago.
Dow Jones Market Data says that on Wednesday, reformulated gasoline for June delivery settled at $2.47 a gallon, up 17.4% year-to-date. At the same time, West Texas Intermediate crude, which is the U.S. benchmark for crude oil, ended at $77.57 a barrel, up 8.3% year-to-date.
Tuesday, the U.S. Department of Energy said it would release 1 million barrels of gasoline from the Northeast Gasoline Supply Reserve to help bring down gas prices at the pump. About all of the gasoline in the reserve has been used up. The reserve holds 1 million barrels of gasoline.
The Energy Department thinks this will make sure that the goods can get to stores in time for the July 4 holiday.
Lenard from NACS said that the average daily demand for gasoline at this time of year is about 9 million barrels. He said the amount of gas the government is taking from the country’s reserve is “substantial,” but it’s only enough to meet 11% of the day’s gas needs.
Still, it adds to the U.S. supply and shows that the government knows gas prices are a “huge pocketbook issue” that needs to be fixed, according to Lenard.
Another thing to remember is that the gasoline reserve is not the same as the U.S. Strategic Petroleum Reserve, which holds about 370 million barrels of oil and is much bigger, he said. The reserve doesn’t have unlimited storage for gasoline because it “doesn’t store as well as oil.” Also, gasoline can hit the market much faster than oil, which has to be refined before it can be sold.
Getting ready, Cinquegrana from OPIS said that gas demand is most likely to peak between now and July 1. However, there is a chance of a “secondary summer peak,” especially if the weather plays a role.
Hurricanes in the Atlantic are “always in the mix,” and he said that refineries don’t do well in places with a lot of heat, like the Pacific Northwest.
Cinquegrana said that this year’s gas demand might be “relatively close to that of 2023’s—maybe down a couple percent when all is said and done.”
