How Does Gasoline Demand Impact Crude Oil Prices?



US crude oil prices  

September West Texas Intermediate crude oil futures contracts rose by 0.40% and were trading at $39.66 per barrel in electronic trade at 7:25 AM EST on August 3, 2016. WTI oil prices rebounded despite bearish momentum ahead of the crude oil inventory report—we’ll cover this in Part 8 and Part 9 of this series. For more on crude oil prices, read the previous part of the series.

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Weekly US gasoline demand  

The EIA (U.S. Energy Information Administration) reported that US gasoline demand rose by 12,000 bpd (barrels per day) to 9.8 MMbpd (million barrels per day) between July 15 and July 22, 2016. The gasoline demand rose by 0.12% week-over-week and 4.9% YoY (year-over-year).

Gasoline prices hit a low of $1.14 per gallon on February 8, 2016—the lowest in 12 years. In contrast, gasoline prices hit $1.67 per gallon on May 24, 2016—the highest since August 2015. Gasoline prices are up by 15% from the lows in February 2016 due to the increase in gasoline demand. As a result, crude oil prices are up 50% for the same period.

Gasoline demand estimates for 2016  

The EIA added that US gasoline demand is expected to increase by 130, 000 bpd to record levels of 9.3 MMbpd in 2016. This would be the highest annual average gasoline consumption on record. Gasoline demand rose 2.7% in 2015 to an average of 9.2 MMbpd.

US highway travel is expected to rise by 2.5% in 2016 compared to 2015 due to lower retail gasoline prices and the strong labor market in 2016. This will lead to a rise in gasoline consumption in 2016. Expectations of a rise in gasoline demand should support gasoline and crude oil prices in 2016. For more on the gasoline and crude oil price forecast, read Why Are Gasoline Prices Falling Again? and Major Banks Expect Crude Oil Prices to Trend Lower in 3Q16. Also, read How Lower Refinery Margins Impact Crude Oil Prices.

High crude oil prices will have a positive impact on oil producers’ earnings like WPX Energy (WPX) and Warren Resources (WRES).

The rollercoaster ride in crude oil prices also impacts funds such as the VelocityShares 3x Long Crude Oil ETN (UWTI) and the PowerShares DWA Energy Momentum ETF (PXI).

In the next part of this series, we’ll look at an important driver for crude oil in 2016—crude oil production.


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