Thursday, December 3, 2009

Seasonality of Demand

Well, with Thanksgiving, and a slight problem in transportation that got us home a day late, it is belatedly time to catch up a little on the latest TWIP report . As we look at reports of weak demand for gasoline and rising stocks, it is important to remember the context within which they are being reported.

Consumption of gasoline is somewhat controlled by season, as is overall oil demand.

Source EIA.

Demand therefore will normally decline in the winter months, and one can see this for the current gasoline demand plot:

Source (EIA )

Demand peaked in August and will now decline until late in February. (Although when, back in that time earlier this year, I looked at these curves I was unable to see a pickup in driving until after April). Looking at how the FHWA record of driving is progressing this month (bearing in mind that the running 12-month total is some months behind current). Overall driving across the country was up 2.5% in September on a year-on-year comparison, and this month there was a gain in all regions of the country. (All but the North-East showing a gain of more than 2%).

Vehicle miles driven reported for Sept 2009 (FHWA )

The changing demand for gasoline with the change in seasons, and the current drop is thus then reflected in the historic change in gasoline prices, which, when averaged from 1990 (taking the data from the EIA) gives:

This is just for regular gas (which is the first column in the table at the EIA that I have derived it from).

Prices have, on average, fallen to a minimum around the beginning of Christmas week, and peaked about the end of June (Morton Downey has a similar sort of chart in Oil 101 which shows that driving peaks at the beginning of August, on average, and is at a minimum in February.

If one looks at the last couple of years, from the EIA plot, one can see that there is, as with demand, a clear seasonality in price, which suggests that no-one should be unduly concerned over prices for the next two or three months, since they will likely fluctuate a little as a result of the normal fall in demand.

Gas prices over the last two years (EIA )

It will be interesting to see, however, what starts to happen as demand picks up, as it normally does, somewhere in towards the end of February and then more strongly in May. Because I suspect that it will be about then that supply might become a little tighter.

We have the Saudi’s at the moment agreeing to hold supplies to the United States at a constant volume, while they previously agreed to increase sales to China as both countries work to cement ties, and while the production from Manifa (h/t Leanan) is pushed back to 2015. Whether this will have any overall impact on the global market will likely become more evident as we move into the summer of next year.

TWIP this week focused on the change in ownership of the refineries in the United States over the past decade. It is best illustrated with this table that they provided.

As you can see, even though there are no new refineries, by improving capacity within existing plant, overall production numbers have increased. The footnote however recognizes the recent closing of the Delaware City refinery and the loss of 210,000 bd of refining capacity.

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