Has Gasoline Price Shock Triggered Demand Destruction Yet? And Where Will Gasoline Prices Go from Here?
There’s some demand destruction. But oil bounced again, gasoline might be next. My guess is a long-drawn-out zigzag higher.
Following the dizzying spike in gasoline prices, the question arises when demand destruction will set in, where people start driving less, start taking it easier to conserve gas when they do drive, or start prioritizing the most economical vehicle in their garage. If enough people do it, demand begins to decline, and gas stations have to compete for dwindling business. Demand destruction is what would cause the price to come down again. Are we there yet?
The Energy Department’s EIA measures consumption of gasoline in terms of barrels supplied to the market by refiners, blenders, etc., and not by retail sales at gas stations. The volume of gasoline supplied has fallen for the third week in a row. This is unusual this time of the year, when gasoline consumption normally rises through the summer.
The EIA reported on Thursday that gasoline consumption fell to 8.61 million barrels per day in the week ended April 8 on the basis of a four-week moving average (red line), the lowest since March 4, down 2.3% from the same period in 2021 (black line) and down 8.1% from the same period in 2019 (gray line).
Consumers began to react in January.
Note how the past 11 months (red line) tracked the pre-Covid period three years earlier very closely (gray line) until they began to diverge sharply, not just in March, but already in mid-January, and have been solidly below the 2019 level ever since.
Gasoline prices started shooting higher from collapsed levels in April 2020. By May 2021, the average price of gasoline, all grades combined, breached $3.00 a gallon, a multi-year high, and kept going…
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