According to recent reports from multiple sources, the demand for gasoline and diesel in the United States has reached its lowest seasonal levels since the COVID-19 pandemic. The Energy Information Administration (EIA) has reported that monthly averages for gasoline demand are at 8.63 million barrels per day, a figure not seen since May 2020 at the start of the pandemic. Similarly, demand for distillates has also reached a seasonal low of 3.6 million bpd, a level not seen since the pandemic as well.
This decline in demand is having a negative impact on refining margins, which have hit their lowest levels in months. The 3-2-1 spread, a key measure of overall refining margins, has fallen below $26.50 per barrel for the first time since February. This drop in demand and subsequent impact on refining margins is causing concern among analysts as to whether it signals a slowing economy or an increase in the adoption of renewable energy sources.
Furthermore, crude oil prices have taken a hit due to the EIA's inventory report, which showed a draw of 1.4 million barrels for the week ended May 3. This follows a significant build of 7 million barrels in the previous week, which put downward pressure on prices. The geopolitical risk premium is also expected to decrease if Israel and Hamas reach a ceasefire agreement in the near future.
In addition to the decline in gasoline and diesel demand, crude oil inventories in the US have also declined. According to data from the EIA, US crude oil inventories declined by 1.4 million barrels in the latest week. This decline was accompanied by an increase in refinery use, following a previous week's massive 7.3 million barrel build; however, there was a 1.9 million barrel increase in stocks at the Cushing, Oklahoma delivery hub.
Analysts have expressed disappointment at these figures as they were expected to be higher. Matt Smith, an analyst at Kpler, said: “The gasoline situation was going to be looked at by everybody and it definitely disappointed.” He added that if this indicates the performance of the economy, it would be bad all around.
Overall, these figures paint a picture of a struggling economy and a decline in demand for fossil fuels. The impact on refining margins and crude oil prices is significant, and there are concerns about whether this trend will continue. The potential increase in renewable energy adoption is also causing uncertainty in the market.
Sources: 1) Oilprice.com; 2) Seeking Alpha; 3) WTVBAM News.
