Has the shock of petrol prices triggered further destruction of demand? And where do petrol prices go from here?

There is some need destruction. But the oil jumped again, and petrol may be next. My guess is that the zigzag that has been pulled for a long time is high.

By Wolf Richter for WOLF STREET.

Following the dizzying peak in petrol prices, the question arises as to when demand catastrophe will occur, where people will start driving less, starting to make it easier to save gas while driving or preferring the more economical vehicle in their garage. If enough people do that, demand begins to decline, and gas stations have to compete for declining business. Destruction of demand is the reason for the fall in prices again. Are we still there?

The EIA of the Department of Energy measures petrol consumption in terms of barrels supplied to the market by refiners, blenders, etc., and not by retail at gas stations. Petrol supply has declined for the third week in a row. This is unusual at this time of year when petrol consumption in the summer generally rises.

Petrol consumption fell to 8.61 million barrels a day for the week ended April 8, based on a four-week moving average (red line), the EIA said on Thursday. 20.1 (black line) and 8.1% decrease (gray line) from the same period in 2019.

Consumers began to react in January.

Notice how the last 11 months (red line) closely monitored the pre-Govt period three years ago (gray line), which began to diverge sharply not only in March, but already in mid-January. First level in 2019.

In April 2020, petrol prices began to rise from their slump. By May 2021, the average price of petrol, including all grades, had surpassed $ 3.00 a gallon, the highest level in many years. In November 2021, it reached $ 3.40 a gallon and retired. Then in early February, it began to soar and reached $ 4.32 on March 14 in historic jumps.

But, since mid-March, prices have fallen. Now at $ 4.09, it has more nosebleeds, but a little less than that:

Gas stations do not cut prices for the good of their heart. They reduce prices as sales are affected, and there is price competition between gas stations in an effort to keep sales volume down. Furthermore petrol stations can reduce the selling price without affecting their profit margins as the price of their products also goes down.

After the destruction of the need to attack petrol crude oil will be sent to demand. But crude oil has wider uses than gasoline, including in the petrochemical industry. A slight decline in petrol demand in the United States is not going to shake global crude oil markets.

Already crude oil prices have risen again.

Crude oil quality WTI rose to $ 130 a barrel and then to the mid-$ 90 mark. In recent days, it has changed course again and is now at $ 106. This is not a good sign for petrol prices.

Clearly, there has been some demand destruction, which may be enough to lower the price of petrol a little.

But maybe not. Perhaps the devastation of this demand is not the cause of the fall in petrol prices. They may have fallen for some other reason, such as the current volatility underlying everything. The wild dynamics of commodity markets look at it.

My guess: Gas prices will rise again.

I can see the destruction of demand, but I now doubt whether it is big enough to cause a permanent decline in petrol prices. I would not be surprised if prices start to rise again. Crude oil prices have already begun to rise again. This can be a long-term process where prices are very volatile and high and high. That’s my guess.

We know what.

Annual petrol consumption peaked in 2007 Then over the next five years until 2012 the total decreased by 6.3%. It soared again, reaching that 2007-peak again in 2016, again in 2017, and again in 2018, again in 2019, without going beyond that. Then in 2020, consumption fell. In 2021, consumption recovered sharply, but annual total consumption fell by 5.3% from 2007!

But total vehicle miles reached a record each year From 2015 to 2019. And despite the decline in 2021 and 2020, mileage has increased by 6.6% since 2007. People drive more, but use less petrol to do so:

Therefore, there are many factors for petrol consumption, Not just the price. These include long-term technological trends such as high-fuel-efficient vehicles, and the advent of EVs that are currently making a dent in petrol consumption.

Other changes also affect gasoline consumption, some of which are more than a decade old, such as the erection of tall residential towers in urban centers, reducing or eliminating travel for residents; Or the tendency to work from home for at least a fraction of the time reduces travelers’ miles.

Pulling in the opposite direction is an increase in driving vacations during epidemics that may now have been replaced by flying again (increased domestic leisure traffic).

Gasoline consumption is so seasonal that it is even harder to figure out where the demand devastation caused by price has occurred and the unusual seasonal patterns playing out.

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