Despite these moderate short-term and long-term demand devastation, I see petrol prices rising further.
By Wolf Richter For Wolf Street.
The price chaos going on at the pump is now leading to some need destruction. We are seeing signs of that. We are at the start of the driving season, but petrol demand is not following the classic pattern of seasonal surges.
The EIA of the energy sector reported that petrol consumption was 8.85 million barrels per day (four-week moving average) 2.7% lower than the same period in 2021 and 6.1% lower than the same period in 2019. Consumption (red) tax in 2022 did not follow the summer driving surge: it was only 1.3% since the beginning of March. But in May 2019 (gray), consumption was 5.2% from March and in May 2021 (black) consumption was 11.9% from March.
The EIA measures gasoline consumption by barrels supplied to the market by refiners, blenders, etc., and not by retail at gas stations.
In October, November and December last year, petrol consumption was higher than in 2019. Consumption was only affected when the shock of petrol prices began to spread among consumers, but it still did not have great success, and consumers have become accustomed to the pain, and the destruction of demand has not worsened over the past few weeks.
Facing consumers at the pump was a majestic spike in petrol prices, which included a small fall in April, confusing everyone and spreading some misconceptions that the price hike was over. In May, inflation hit new highs again. On Monday, the EIA’s weekly benchmark reached $ 4.59 per gallon:
Long-term need destruction is happening, but it is a slow process.
The peak years for petrol consumption were 2016, 2017, 2018 and 2019, all of which were about 9.3 million barrels a day, and slightly higher than 2007, between -6.3%. During the summer driving season, the peaks reached 9.7 million barrels a day.
U.S. petrol consumption may peak in 2016-2019. The current price hike is changing the way repurchases are made for more economical vehicles, including smaller vehicles and hybrid powertrains. We are already seeing signs of that. These changes in purchasing practices have long-term effects on gasoline consumption.
Conventional automakers are finally releasing EVs, and while large-scale production is still paralyzed by various shortages, especially the semiconductor shortage is hitting automakers on all models, with high demand for EVs and long waiting lists. 1.44 million EVs on the road in the United States Only 0.5% of the 280 million vehicles in operationBut EV sales are on the rise, and ICE vehicle sales are falling, and every percentage gain on the share of EVs represents a visible decline in petrol consumption.
The wave has become a kind of permanent trend among office workers who work from home during epidemics, working at least part of the time, trips are no longer a daily thing, but it can be two. Or three times a week, which dramatically reduces gasoline consumption for those households, especially those with longer trips.
Destruction of short-term need.
Rising petrol prices, if they hit enough in the pocket book, trigger some changes in what people are doing: they start to drive less, they start to make it easier to save gas while driving, and they start to prioritize the more economical vehicle in their home. They can cancel road trips and reduce driving during the holidays.
But these are short-term effects, things that people can do this year or this month, but once they get used to the higher gas prices, maybe if they get higher, those higher gas prices will reduce the toxicity and some of those changes will relax.
Is destruction necessary as people still return to mass transportation?
How high should petrol prices be before people return to passenger trains? Passenger train systems across the United States have suffered great losses as people began to commute to work or stay at home to go to work during epidemics.
So is the current price hike enough to get people back on the trains? Take a look at the BART trains in the San Francisco Bay Area. Here, drivers face petrol prices in the $ 6 range, bridge tolls have been raised, and traffic congestion is as bad as it was before the epidemic. It will be a great incentive to return to BART.
So let’s see. Yes, in March, when petrol prices hit new highs, BART ridership rose 32% to 3.34 million from 2.52 million in February. In April, when petrol prices fell slightly, the number of passengers increased to 3.38 million. Now in May, when petrol prices at many gas stations are above $ 6 a gallon – we have to wait until May data arrives. I look forward to another improvement in ridership as of March. Thus the destruction of petrol demand by people returning to mass transport takes place, but only on the steps of children, and the number of passengers before the epidemic is 67% less than the limit of 10 million:
I see petrol prices rising despite this moderate demand being destroyed.
There is short-term changes in driving behavior, long-term changes in the vehicles people buy, and some moderate demand devastation from people returning to mass transit on pedestrian steps. But this is not a decline in demand, it is a normal decline that will continue for many years.
Industry can also figure this out, and they will continue to reduce investment and ability to cope with this sluggish need. And nothing has changed. If there is a sudden decline in demand, it will be different. But at this price it will not happen.
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