The accompanying chart clearly illustrates how the world’s biggest economic powers are approaching the transition from fossil fuels to renewable energy. The latest annual report from the IEA shows a nearly insatiable Chinese appetite for electric cars, gentle growth in Europe, and stagnation or even contraction in the U.S.. The U.S. stance is well publicized. The incumbent administration is fossil fuel friendly, as demonstrated by its recent revocation of the 2009 ruling that concluded that greenhouse gases harm public health. In repealing the climate rule, the U.S. administration pledged to support the U.S. car industry, arguing that the cost of manufacturing each vehicle would fall by $2,400.

With the comparatively tepid penetration of electric cars in the U.S., the question arises: How will gasoline demand and crack spreads be affected in the foreseeable future? The EIA seems to take the contrarian view that, despite the slow uptake of electric cars, gasoline consumption is being adversely affected. It sees domestic gasoline demand as having peaked in 2024 at 8.97 mbpd, declining to 8.91 mbpd the following year, 8.78 mbpd this year and 8.73 mbpd in 2027.

The predicted fall in domestic consumption, while partly a function of the slow but gradual proliferation of electric cars, is also, and perhaps predominantly, the result of improving fuel-efficiency standards. The question is whether this trend will continue and how it will affect the price differential between U.S. gasoline and crude oil – the value of the crack spread.

Notwithstanding the undeniable presence of electric vehicles, their share of new sales will probably remain subdued over the near term. The on-road fleet turns over in around 10 years, and vehicles with internal combustion engines (ICE) will dominate miles driven in the coming years. This, in turn, will ensure that domestic gasoline demand erodes slowly, if at all, this decade. Another supportive factor is declining U.S. refining capacity, which peaked at 18.81 mbpd pre-COVID and is forecast to retreat to 18.02 mbpd by next year, according to the EIA.

The current geopolitical upheaval in the Middle East is providing unreserved support for CME Group’s RBOB crack spread, but when the conflict is over and the spread corrects downward, the persistent popularity of ICE vehicles and constrained refinery capacity should ensure that a reversion to the long-term mean of around $18/bbl to $20/bbl will offer an attractive buying opportunity in the RBOB Gasoline contract against the WTI Crude Oil contract for the remainder of the current decade.