Upbeat U.S. Gasoline Outlook
It promises to be a hot summer, not just weather-wise but also in the U.S. gasoline market. Although CME Group front-month RBOB prices have moved in a relatively wide range of $2.25/gallon and $2.73/gallon in the last three months, demand is expected to hold up well, providing support for the motor fuel. The last reporting period, April 2023, saw 256.1 billion total vehicle miles travelled, which is a growth rate of 5.14% on average. And the trend is anticipated to continue throughout the summer.
Drivers are expected to benefit from stable pump prices in the coming months. At the end of June average U.S. retail gasoline prices stood at $3.68/gallon and whilst it is somewhat stronger than the prior month it is considerably lower than the level observed in the comparative period of 2022, $4.99/gallon, let alone the peak of $5.11/gallon in 2022. Looking ahead, the EIA forecasts that retail gasoline prices will average around $3.40/gallon during the summer 2023 driving season, a 20% decrease from the summer of 2022. For the whole of 2023 retail prices are expected to average $3.39/gallon, down from $3.97/gallon last year.
As pump prices are to see significant relief from year-ago levels consumption is set to remain robust and the stage is set for a strong driving season. Weekly data implies a consumption of 9.27 mbpd on a four-week average basis compared to 8.93 mbpd during the same period of last year. The monthly EIA projection puts Q2-Q3 2023 combined demand at 9.05 mbpd, more than 100,000 bpd higher than in 2022.
The naysayer would argue that increased U.S. refining capacity will alleviate the fears of a tight market. Yet, despite the prospect of rising refinery runs, U.S. gasoline supply and demand conditions remain tight. Domestic inventories are historically low (they are 12 mbpd under the seasonal five-year average) and gasoline forward cover (stocks/divided by demand) is under 24 day, two days lower than the five-year average. Gasoline is likely to remain an area of relative strength for demand as the U.S. summer driving season gets under way in earnest and might single-handedly support the entire energy complex.
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.