February 29, 2012 / 7:46 PM / in 6 years

COLUMN-December data underscores weak U.S. gasoline demand-Campbell

(Robert Campbell is a Reuters market analyst. The views expressed are his own)

By Robert Campbell

NEW YORK, Feb 29 (Reuters) - Monthly data for December 2011 released on Wednesday shows U.S. gasoline demand continued to come in well below year-ago levels even as the economy accelerated, suggesting some of the weakness seen in more recent monthly data may not be out of place.

Analysts have questioned the picture painted of U.S. gasoline demand by the Energy Information Administration’s weekly “product supplied” estimate as it has regularly come in down 5 percent or more from year-ago levels.

While challenges estimating product exports are well known and likely have contributed to an underestimation of U.S. gasoline demand in the weekly figures, it is also clear that demand for the motor fuel is undergoing a major shift.

Unlike past economic expansions, this economic recovery has not been accompanied by a growth in gasoline demand but rather by a continuation of the decline trend.

U.S. drivers consumed 8.66 million barrels per day of gasoline in December, down more than 250,000 bpd or 2.8 percent from the same month in 2010, according to the EIA's more precise monthly data. (Graphic: r.reuters.com/wug86s)

With U.S. gross domestic product growth revised higher to 3 percent in the fourth quarter of 2011, the decline in U.S. gasoline consumption is all the more remarkable.

However it does suggest that some of the extreme weakness seen in the weekly data may be due to problems estimating exports.

Nevertheless the question remains: Will U.S. gasoline demand continue to fall in 2012 even if the economy stays on track? And if so by how much?

The persistent weakness in U.S. gasoline demand has emerged as the Achilles heal of the Atlantic basin refining sector, which is heavily geared to making the fuel.

For the most part, distillate fuel prices have held up margins for refiners.

Here U.S. consumption data is less dire but still not very bullish.

Although distillate demand was down sharply from 2010 levels at 3.78 million bpd in December, much of this weakness can probably be attributed to seasonal factors.

Still, demand for diesel fuel in the United States has never come close to recovering to the peak levels seen during the 2006-2010 period and is only modestly higher than 2010's levels. (Graphic: r.reuters.com/xug86s)

Distillate demand weakness likely persisted in January and February at least in part due to the exceptionally warm winter. Yet should the economic recovery stay on track, some growth in distillate demand should be expected. (Editing by Lisa Shumaker)

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