Ive here. While I haven’t followed gasoline market conditions closely, it seems certain that the price trajectory will be higher. First, we’re taking some rest from China’s blockades, which cut China’s demand for oil and gas. But “Second” is a mixed item. Biden has authorized access to the Strategic Petroleum Reserve at a rate of 1 million barrels per day, which is a little more than we import from Russia. But it’s only six months. Think the US is ready to end sanctions on Russia by then? Not only is the answer likely to be no, but Russia will almost certainly not accept any payment other than the “ruble-to-pay” process it stipulates for European gas purchases (if the US is going to back down). The only way Russia could possibly accept dollars is if the U.S. were to return the $30 billion in central bank reserves it stole, which is unlikely to happen.

go through Wolf Richter, editor of Wolf Street.Originally Posted in wolf street

The problem arises as gas prices skyrocket, and when the demand destruction kicks in, people start driving less, start saving gas more easily while driving, or start prioritizing the most economical vehicle in the garage. If enough people do this, demand starts to drop and gas stations have to compete for dwindling business. Demand destruction is what is causing prices to drop again. Are we there yet?

The Department of Energy’s EIA measures gasoline consumption by the number of barrels supplied to the market by refineries, blenders, etc., rather than retail sales at gas stations. Gasoline supplies fell for the third straight week. This is unusual at this time of year, when gasoline consumption typically rises throughout the summer.

On a 4-week moving average (red line) basis, gasoline consumption fell to 8.61 million bpd in the week ended April 8, the lowest level since March 4, the EIA reported on Thursday, down from a year earlier. It fell 2.3% over the same period. 2021 (black line), down 8.1% from the same period in 2019 (grey line).

Consumers start to react in January

Note how the past 11 months (red line) are very close to the pre-Covid period (grey line) three years ago, until they started to diverge sharply, not only in March, but already mid-January and have been lower than in 2019 level so far.

Gasoline prices have risen from April 2020 crash levels. The combined average price of gasoline for all grades broke past a multi-year high of $3.00 a gallon through May 2021 and continues to rise. In November 2021, it hit $3.40 a gallon before taking a break.Then in early February, it started to soar and Historic leap to $4.32 on March 14.

But prices have fallen since mid-March. Now at $4.09, it’s still high, but a bit lower than before:

Gas stations don’t cut prices out of good intentions. They lowered their prices as sales took a hit and price competition began among gas stations to maintain sales. Gas stations can lower selling prices without compromising profit margins because the cost of their products has also fallen.

The demand destruction for gasoline will be passed on to crude oil demand. But crude oil is used for much more than gasoline, including the booming petrochemical industry. A small drop in U.S. gasoline demand won’t have much of an impact on the global crude market.

Crude oil prices have rebounded again

Crude-grade WTI surged as high as $130 a barrel before falling back to the mid-$90s. In recent days, it has changed direction again and is now at $106. That doesn’t bode well for gasoline prices.

Clearly there’s been some demand damage, maybe that’s enough to bring gasoline prices back a bit.

But maybe not. Perhaps this demand destruction is not the reason for the drop in gasoline prices. Maybe they fell for some other reason, like the current volatility has hit everything. The wild dynamics of commodity markets bear this out.

My guess: Gas prices will rise again

I can see demand destruction, but at the moment I’m still skeptical that it will be enough to keep gasoline prices down. I wouldn’t be surprised if prices start moving higher again. Crude oil prices have started to move higher again. It can be a long process, with prices very volatile and zigzagging higher and higher. This is my guess.

what we know

Gasoline consumption peaked in 2007 It then fell by a total of 6.3% over the next five years through 2012. It then rose again and reached its 2007 peak again in 2016, 2017, 2018, and 2019 without surpassing it. Then in 2020, consumption collapsed. Consumption will rebound sharply in 2021, but total year-end consumption is still down 5.3% from 2007!

But the total mileage driven by the vehicle sets a record every year From 2015 to 2019. By 2021, despite the 2020 crash, miles driven increased by 6.6% over 2007. People drive more, but they use less gasoline:

So there are many other factors that affect gasoline consumption, not just price. This includes long-term technology trends, such as more fuel-efficient cars, and the advent of electric vehicles, which are now large enough to reduce gasoline consumption.

Other changes have also affected gasoline consumption, some dating back more than a decade, such as the construction boom in high-rise residential towers in urban centers that reduce or eliminate residents’ commutes by car; or the trend to work from home at least part-time has also reduced commuting mileage.

The opposite is true for an increase in driving holidays during the pandemic, which may have been replaced by flying again (increased domestic leisure traffic).

Gasoline consumption is also highly seasonal, which makes it harder to spot where demand is disrupting due to price, and where unusual seasonal patterns might play a role.