Demand For Gasoline Seems Hard To Meet

Gasoline demand continues to hold up reasonably well amid elevated prices and refineries may now be struggling to keep up, analysts told Zenger.

Travel club AAA listed a national average retail price of $3.35 for a gallon of regular unleaded gasoline for Tuesday. That’s still the highest level since late 2014, but marks a decline from the average of $3.40 per gallon realized for much of last month.

The price for crude oil, the largest factor that determines what consumers pay at the pump, has been on a steady decline since the discovery of the new Omicron variant of the novel coronavirus that causes COVID-19. West Texas Intermediate, the U.S. benchmark for the price of crude oil, fell more than 20 percent last month, but has recovered 8 percent so far in December.

Patricia Hemsworth, a senior vice president at Paragon Markets, told Zenger from New York City that retail gasoline prices are gradually declining, but a recent decision from the Organization of the Petroleum Exporting Countries to keep their regular monthly meeting in open session has added a bit of a premium to the price of oil because it shows the group is ready to pounce on any abnormal market factors. The increase in crude oil prices is subsequently impacting consumers at the pump.

Meanwhile, the Omicron variant may be more contagious than other strains, but symptoms so far are reportedly mild. Those factors are just some reasons for bullish trends on broader markets this week.

“We are having a rally today in stocks, all futures and gasoline,” Hemsworth said.

From supply chain issues to the inflation stemming from the pronounced economic recovery since the depths of the pandemic, there are a myriad of factors keeping the price at the pump at multiyear highs.

However, Matthew Kohlman, an associate director for refined products pricing at S&P Global Platts, said that demand is still steady.

“Demand is looking just fine,” added Patrick DeHaan, the senior petroleum analyst at GasBuddy.

On top of everything else, supplies aren’t keeping up with demand levels and refiners are struggling as well.

“Refineries had been simply hampered by deep freezes, hurricanes, flooding and even ransomware attacks slowing down their output far greater than usual until the end of the year,” Kohlman said.

There can be ample supply of feedstocks going into refineries, but if they’re idled by extraordinary factors, those extra supplies are meaningless.

Meanwhile, the U.S. Energy Information Administration in its monthly market report for December said it expected retail gasoline prices to move below the $3 per gallon threshold next year. The agency expects prices to move closer to the $3 per gallon level through December and average $2.88 per gallon for 2022.

Edited by Bryan Wilkes and Kristen Butler