Gasoline Consumption, Production Drop Causes Seasonal Adjustments
Vienna-based research firm JNC Energy GmbH released a report this week about the need to scale back production at gasoline refineries to avoid a large surplus. The report continues, “Lower production would also translate into lower exports of the motor fuel from the region, which could potentially offer some relief to the global gasoline market and by extension refining margins.” While most citizens would welcome some relief at the pump, the worry of reducing processing margins from an oversupply of gasoline is of great concern to the industry, which has experienced a drop in gasoline sales of late.
Gasoline inventory increased to 212 million barrels in the final week of November, the highest level since April. In addition, demand slid nearly 4 percent to its lowest level in nearly a month, according to Mastercard Inc.
As a result, the gasoline producer price index dropped a full percentage point in the past two months, the US Labor Department announced Thursday. According to AAA, the last month has seen national gas prices fall the most in three years, all the way to $3.32/gallon earlier this week. That’s 13 cents/gallon cheaper than last month and almost 50 cents/gallon less than the prices in mid-October.
Concerns have made their way over to Europe, too. Germany, Europe’s strongest economy, has seen gasoline inventories go up to 2.3 million barrels since mid-summer and they have remained 1.5 million barrels above the five-year average at the end of October.
It’s worth noting that gasoline consumption does tend to take a slight dip around this time of year, regardless of economic variables. ‘Driving season’ is primarily in the summer months, when ‘roadtrippers’ are driving across the country and vacations are peaking. The recent series of debt crises throughout Europe, coupled with economic uncertainty during an election year in the US, can also dictate seasonal drops and gains throughout the calendar year. This recent drop in prices however, is more substantial than usual.
Additional speculation regarding the lack of gasoline consumption is varied. One unavoidable factor is the impact and aftermath of Hurricane Sandy. The storm destroyed well over 200,000 vehicles in its wake, leaving a sizable amount of drivers off the road for a considerable amount of time. Unseasonably mild weather across the US motivates many citizens to find alternate methods of transport. In addition, good weather improves automobile fuel efficiency because people don’t idle their engines to warm their vehicles or weigh them down with sand bags for greater traction on wintery roads.
There’s also substantial evidence to support that vehicles with higher fuel efficiencies are making a considerable dent in fuel consumption. According to the Transportation Research Institute at the University of Michigan, the average fuel economy of a vehicle rolling off production lines in November was 24.1 mpg. That ties the current record set in October and remains 20% better than fuel efficiency in vehicles made in 2007. As a result, the University of Michigan study states that over 6 billion gallons of fuel have been saved because of emissions standards set in place five years ago, along with 120 billion fewer pounds of carbon dioxide and various toxins entering the atmosphere.
So, whether this recent downturn in gasoline production and consumption is a mere blip on the radar or a strong indicator for concern, I think we can all agree that the last thing we hope to see is another series of gas price increases to compensate. Because many companies that work in gas refining also generate oil and natural gas, and those industries continue to flourish, long term concerns for these companies aren’t considered to be drastic.
Energy Curtailment Specialists, Inc.