Over the past six months, excess U.S. crude oil and product inventories have declined from their surplus at the start of the summer of 2020. Petroleum inventories have been slowly falling and are now at just single-digit-percent surpluses over five-year averages, compared to 20-30 percent excess over five-year seasonal averages last summer. Demand for gasoline and other petroleum products in the United States has recovered from multi-year lows in April and May, but the last leg of the recovery to pre-pandemic levels proves to be the most difficult and seems to have stalled at the end of 2020.
Sure, consumption has recovered from the spring of 2020, and the excess of inventories has been shrinking. This has come, however, at the expense of significantly reduced refinery utilization and crude oil processing since oil prices and demand crashed in March. Refiners are still processing crude at levels below normal, with refinery utilization across the United States at just 80.7 percent in the week ending on January 1, compared to 93-percent utilization for the same week in the previous year, EIA’s weekly petroleum report showed last week.
This latest report showed a major crude oil draw of 8 million barrels, but substantial inventory builds in gasoline and middle distillates.
Still, excess stocks of all types have been trending down in recent months, and middle distillate consumption such as diesel are back to pre-crisis level, Reuters market analyst John Kemp writes.
Over the past four weeks, distillate fuel product supplied—the proxy for demand—averaged 3.7 million barrels per day (bpd), down by just 0.3 percent from the same period last year, EIA’s report showed.
However, the largest component of U.S. oil demand—gasoline consumption—was still down by a double-digit percentage. Over the past four weeks, motor gasoline product supplied averaged 7.9 million bpd, down by 11.8 percent from the same period last year, EIA said.
This suggests that the last part of the oil demand recovery will be the hardest, with the most recent data pointing to a stall again due to reduced travel amid measures to fight soaring COVID-19 cases.
In the week to January 1, implied U.S. gasoline demand fell to levels last seen in May 2020, according to Bloomberg estimates of EIA data on motor gasoline product supplied.
There’s no evidence of a substantial pick-up in gasoline demand in the immediate term, and the still raging pandemic will continue to weigh on travel in coming weeks, analysts told Bloomberg last week.
In 2020, vehicle travel in the U.S. dropped to multi-year lows, with April vehicle travel the lowest on record dating back to 2000, according to the EIA. Average gasoline prices were also down last year to the lowest annual average since 2016.
End-December saw the highest U.S. gasoline price in nine months, but not because of high demand.
“Despite low demand, pump prices are more expensive because crude oil has seen steady gains,” AAA spokesperson Jeanette Casselano McGee said.
U.S. gasoline demand was at the lowest level for the last week of December in 23 years (since 1998)—at 8.1 million bpd, with holiday travel down by at least 25 percent, AAA said last week. As of January 4, AAA expected gasoline demand to dwindle in coming weeks as the holiday season ended.
This year, U.S. gasoline prices will rise compared to 2020, to an average of $2.44 per gallon, with a low point in January and a possible high point in July, according to GasBuddy’s Fuel Price Outlook. However, due to the pandemic, the margin for error is 19.8 percent, the highest level of uncertainty in predictions since GasBuddy started its forecasts in 2012.
“With the coronavirus in the driver’s seat, 2021 looks to be a very uncertain year for gas prices with a wide range of possibilities. Add in President-elect Biden and the potential for new policy adding into the equation, we could see gas prices coming into 2020 like a lamb and leaving like a lion,” said Patrick De Haan, Head of Petroleum Analysis at GasBuddy.
The biggest unknowns for U.S. gasoline and total oil demand, of course, will be the pandemic, how fast vaccines are being rolled out, and how fast they would allow a return to normality, analysts including GasBuddy say.
At least in the early months of 2021, U.S. gasoline demand will struggle to reach pre-crisis levels.