Motor gasoline demand growth remains resilient despite the record high retail motor gasoline prices and soft economic growth environment in the United States, which in turn has renewed concerns about the reliability of the official demand data, according to market research by Goldman Sachs.
"In our view these concerns are unfounded as gasoline demand growth continues to be driven by year-over-year price changes, which have averaged a modest 5 percent in the past four weeks, rather than price levels, which have reached record highs," said Goldman Sachs in its Energy Weekly report.
The fact that US gasoline demand has grown more than vehicle miles traveled in the first three months of this year reflects lower aggregate fuel efficiency following the price pull-backs at the end of last summer and the beginning of this year as well as the normal statistical difference between
the two series, said Goldman Sachs.
US motor gasoline demand remains resilient, as expected
Crude oil prices rallied last week with Brent reaching a 9-month high of over $71.00/bbl during intra-day trading on Thursday, on the back of tightening global fundamentals and renewed concerns surrounding Nigeria and Iran.
Further, despite the rebound in US motor gasoline production, US retail motor gasoline prices continued to soar last week, setting a new record of $3.25/bbl as resilient demand has limited the inventory build of the past three weeks, casting doubts on the ability of increased refinery production to quickly rebuild inventories ahead of the summer driving season, said Goldman Sachs.
In sharp contrast to Brent, WTI crude oil prices remained under considerable pressure last week, reaching a record low differential to Brent of -$6.54/bbl as the signs of recovery from the prolonged refinery outages that have plagued the US Midwest this spring have not yet translated into a sustained decline of crude oil inventories,especially in Cushing, Oklahoma,the delivery point of the WTI NYMEX contract.
Despite the 350 thousand b/d week-over-week rebound in US refinery runs last week, US crude inventories built by 2 million barrels as the strong response of the refining system to the extraordinary high cracks was countered by an increase in crude imports that reached 10.9 million b/d. It should be emphasized that despite the crude stock build in Cushing the rest of the US Midwest actually saw a 1 million barrel decline in inventories.
Goldman Sachs said it expects "further declines in US Midwest crude oil inventories in the coming weeks, including a draw in Cushing inventories,as the rebound in refinery runs will continue to combine with a decline of Canadian crude oil supplies to the region owing to seasonal maintenance in Canadian synthetic crude oil production and the recent expansion of pipeline capacity to the export terminals on the west coast of Canada."
More specifically, crude oil inventories in the Canadian Enbridge pipeline system, through which almost all of the Canadian oil supplies are delivered to the US Midwest, have already started to show sharp declines throughout the past week, which suggests that Cushing inventories are also likely to draw going forward, Goldman Sachs said.
Gasoline demand growth: a non-existent puzzle
While US retail motor gasoline prices climbed to new record highs last week, US motor gasoline demand reached 9.4 million b/d, 1 percent higher than year-ago levels. Although recent week-over-week increases are in line with the normal seasonal pattern, the resilience of year-over-year US motor gasoline demand growth, despite the record high US retail motor gasoline prices and soft US economic growth environment, has renewed concerns about the reliability of the official demand data from the US Department of Energy (DOE), noted Goldman Sachs.
"However, in our view these concerns are unfounded. The ra