U.S. Gasoline Demand Surges To New Record
In last month’s Short Term Energy Outlook (STEO), the Energy Information Administration (EIA) projected that it now expects record U.S. gasoline consumption this year:
Motor gasoline consumption is forecast to increase by 130,000 b/d (1.5%) to 9.29 million b/d in 2016, which would make it the highest annual average gasoline consumption on record, beating the previous record set in 2007 by 0.1%. The increase in gasoline consumption reflects a forecast 2.5% increase in highway travel (because of employment growth and lower retail gasoline prices) that is partially offset by increases in vehicle fleet fuel economy.
This projected increase follows several years of lower gasoline demand that resulted from persistently rising gasoline prices over the past decade. From 2002 to 2012 the average retail price of gasoline rose nearly every year, from an annual average of $1.39/gal in 2002 to $3.68/gal in 2012. Consumers responded to these higher prices in multiple ways, which cumulatively led to falling gasoline demand. Some even suggested that U.S. gasoline demand had permanently peaked, as a result of more fuel efficient vehicles and increasing adoption of electric vehicles (EVs). We can now say those predictions were premature.
Gasoline prices has fallen over the past two years. With the oil price collapse that began in the second half of 2014, the average retail price of gasoline fell to $3.44/gal in 2014 and then plunged to $2.52/gal in 2015. The average retail price fell to under $2.00/gal earlier in 2016, and is on pace to average even lower this year than in 2015.
As recently as February of this year the EIA was forecasting that this year’s gasoline demand would be below the 2007 peak, but demand has surged since then. In fact, I have analyzed the EIA’s estimates for Product Supplied – Finished Motor Gasoline and found that the average for the first six months of 2016 was the highest ever recorded for the first half of a year at 9.38 million bpd. The previous record for the first six months of a year was in 2007 at 9.30 million bpd. Following that, July’s average gasoline demand of 9.75 million bpd was the highest monthly demand ever recorded by the EIA.
Some have suggested that this higher level of gasoline demand is a reflection of higher U.S. exports of gasoline, and not actual U.S. demand. While it is true that the U.S. is exporting about 400,000 bpd of gasoline, according to the EIA that is already factored into the calculation of “Product Supplied.” Quoting from the EIA’s glossary:
Product supplied: Approximately represents consumption of petroleum products because it measures the disappearance of these products from primary sources, i.e., refineries, natural gas-processing plants, blending plants, pipelines, and bulk terminals. In general, product supplied of each product in any given period is computed as follows: field production, plus refinery production, plus imports, plus unaccounted-for crude oil (plus net receipts when calculated on a PAD District basis) minus stock change, minus crude oil losses, minus refinery inputs, and minus exports.
So the definition is taking into account both gasoline exports and gasoline imports into the picture. And in fact, the U.S. is currently importing over 800,000 bpd of gasoline — far more than we export.
Thus, the bottom line is that despite the growth of EVs and an increase in the overall fuel efficiency of cars on U.S. roads, gasoline demand has risen to record levels.
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