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Lower Gasoline Demand Sent Prices Down

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Jan. 29 2016, Updated 8:07 a.m. ET

Gasoline demand for the week ending January 22

According to the EIA’s (U.S. Energy Information Administration) Weekly Petroleum Status report, US gasoline demand was 8.9 MMbpd (million barrels per day) for the week ended January 22. Gasoline demand fell by ~0.13 MMbpd from the previous week. The current gasoline demand is just ~0.8% lower than the same period last year.

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Gasoline prices

The U.S. Energy Information Administration’s Weekly Petroleum Status report showed that the average retail regular gasoline price decreased for the fourth week in a row to $1.856 per gallon on January 25, 2016. The gasoline prices fell by $0.058 per gallon compared to the prior week. Prices per gallon are $0.188 lower than the prices in the same period last year.

Gasoline demand declined

Gasoline prices have been under tremendous pressure for quite a long time and have registered a decrease for four weeks in a row. The gasoline inventory surge and lower demand pressured prices more. The gasoline inventory levels are growing at a rapid pace because of high refinery margins as discussed in the previous part of this series.

The gasoline demand generally decreases during the peak winter months, as people tend to drive less due to colder temperatures. The long-term lower crude oil prices (USO) are also one of the major reasons for the downturn in gasoline prices.

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The falling gasoline prices have a negative impact on the margins of the refineries such as Western Refining (WNR), Marathon Petroleum (MPC), Holly Frontier (HFC), and Valero Energy (VLO). Lower prices are also bad for MLPs like CVR Refining (CVRR) and Calumet Specialty Products Partners (CLMT) because lower prices result in lower production levels, which in turn lead to lower transport volumes.

EIA estimates

The EIA estimated that gasoline consumption rose by 0.24 MMbpd, or 2.6%, to average 9.2 MMbpd in 2015, which is the highest level since the record of 9.3 MMbpd in 2007. The EIA also forecasts that gasoline demand will increase by 70,000 barrels per day, or 0.8%, in 2016, and 20,000 barrels per day, or 0.2%, in 2017.

The EIA’s projected retail prices for gasoline averaged $2.43 per gallon in 2015. The EIA projects that gasoline prices will average $2.03 per gallon in 2016 and $2.21 per gallon in 2017.

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