Analysis by Dr. Nancy Yamaguchi
Overview and COVID-19 Apparent Demand Response
The U.S. Energy Information Administration (EIA) released its weekly data on diesel and gasoline retail prices for the week ended December 7. Prices rose for both fuels. Gasoline prices rose by 3.6 cents per gallon, while diesel prices rose by 2.4 cents per gallon. Retail prices for gasoline averaged $2.156/gallon. Diesel prices averaged $2.526/gallon. The COVID-19 pandemic caused severe demand destruction. Demand has been recovering gradually. Gasoline demand has not regained pre-pandemic levels, nor is it expected to this calendar year. Diesel demand has climbed this month, and it is above its pre-pandemic level, but November 2020 demand remains slightly below November 2019 levels. COVID-19 infections are surging, with daily infections continuing to break past records.
The EIA publishes weekly “product supplied” data as its proxy for demand. These data show gasoline demand crashing from 9,696 barrels per day (kbpd) during the week ended March 13 to just 5,065 kbpd during the week ended April 3, a huge hit of 4,631 kbpd in just four weeks. That was the low point. Demand thereafter trended generally up until it reached 8,608 kbpd during the week ended June 19. Since then, demand has cycled up and down, but it has never regained its March 13 level. Apparent demand recovered to 8,809 kbpd during the week ended July 24, retreated to 8,617 kbpd during the week ended July 31, then jumped to 9,161 kbpd during the week ended August 21. Since then, demand has been in the range of 8,400-8,900 kbpd. It rose to 8,896 kbpd during the week ended October 2, then fell again over the ensuing two weeks. Gasoline product supplied averaged 7,973 kbpd during the most recent week ended November 27, down from 8,129 kbpd the prior week. The EIA points out that “product supplied” is not a precise measure of demand, but these data provide the most up-to-date numbers publicly available.
Diesel demand dropped sharply in response to COVID-19. It began to recover in fits and starts. Diesel demand stagnated at first, recovered moderately, then began to vacillate between approximately 3,000 kbpd and 3,800 kbpd. The EIA reported that distillate fuel oil demand plunged by 1,256 kbpd between the week ended March 13 and the week ended April 10, slumping from 4,013 kbpd to 2,757 kbpd in a four-week period. Demand has been cycling up and down, rising strongly to 3,958 kbpd during the week ended August 21, then retreating to bottom out at 2,809 kbpd during the week ended September 11. This was the lowest reported level since the week ended April 10, reinforcing the concern that demand would not fully recover to pre-COVID-19 levels this calendar year. The week ended November 27 showed diesel demand at 3,789 kbpd, down from 4,4175 kbpd the prior week. The current surge in COVID-19 cases may cut into demand in coming weeks as various areas tighten stay-at-home orders.
For the week ended December 7, retail prices for gasoline rose by 3.6 cents/gallon. Retail prices for diesel rose by 2.4 cents/gallon.
The national average price for gasoline was $2.156/gallon. This price was 40.5 cents/gallon below the price for the same week one year ago. In February, retail prices for gasoline were higher than they had been a year earlier. The COVID-19 pandemic caused gasoline prices to fall below $2/gallon. Prices in three of the five PADDs are now above the $2/gallon level. From late-November through early March, gasoline prices had been above their levels from last year. During the week ended March 2, retail gasoline prices were a mere 0.001 cent/gallon above last year’s level. The huge price declines since then have brought gasoline prices dramatically below their levels of last year.
Diesel prices also had been above last year’s level, but prices are now well below these levels. On a national basis, the retail price for diesel averaged $2.526/gallon—52.3 cents/gallon lower than the price in the same week last year.
Futures Prices and Retail Price Outlook
Futures markets currently are in a holding pattern, cautious because of the surge in COVID-19 infections, and awaiting news of progress in the next round of federal economic stimulus. During the week November 30 to December 4, futures prices for crude and products changed little. West Texas Intermediate (WTI) crude oil futures prices rose for the fifth consecutive week, but this time at a very modest level of $0.30 per barrel (0.7%.) WTI futures closed the week at $46.26 a barrel. Recall that on October 30th, the market had slumped to close at $35.79 a barrel, the lowest level in approximately five months. As of Tuesday December 8, WTI crude futures prices have retreated somewhat, but they remain in the vicinity of $45.50 a barrel, the highest levels seen since before the COVID-19 pandemic hit in March.
During the week November 30 to December 4, gasoline futures prices declined fractionally by 0.15 cents per gallon (0.1%.) Diesel futures prices rose by 1.29 cents per gallon (0.9%.) Futures prices for both fuels have tapered down from last week’s highs, but both appear stable today. While the relationship between futures prices and retail prices is not immediate or one-for-one, the strong upward price trend seen over the past five weeks is likely to flatten this week.
Retail Diesel Prices
The week ended December 7 brought a 2.4 cents per gallon increase in the retail price for diesel to reach an average price of $2.526/gallon. Prices rose in all PADDs. The national average price for the week was 52.3 cents/gallon below where it was during the same week last year.
For the year to date, diesel prices have fallen by a cumulative 55.3 cents/gallon, a major downward slump. The downward trend flattened in June and July, but prices trended down again in late summer and early fall. Looking back to the autumn of 2019, retail diesel prices had been below the $3/gallon mark until the attacks on Saudi Arabian oil facilities in mid-September 2019. They rose at that time, and they remained above the $3/gallon mark until the week ended February 3, 2020. Prices then continued to trend generally down until just the past month.
In the East Coast PADD 1, diesel prices rose by 3.3 cents to reach an average of $2.573/gallon. Within PADD 1, New England prices rose by 1.2 cents to average $2.587/gallon. Central Atlantic diesel prices increased by 3.6 cents to average $2.779/gallon. Lower Atlantic prices rose by 3.3 cents to average $2.433/gallon. PADD 1 prices were 47.7 cents/gallon below their levels for the same week last year.
In the Midwest PADD 2 market, retail diesel prices rose by 3.1 cents to average $2.435/gallon. Prices were 53.1 cents below their level for the same week last year. PADD 2 joined PADD 3 during the week ended June 17, 2019, in having diesel prices fall below $3/gallon. Prices subsequently fell below $3/gallon in PADD 4 and PADD 1. Finally, PADD 5 prices also slid below the $3/gallon mark, though this reversed earlier this month.
In the Gulf Coast PADD 3, retail diesel prices rose by 2.2 cents to average $2.276/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 25.0 cents below the U.S. average. Prices were 48.3 cents below their level for the same week in the previous year.
In the Rocky Mountains PADD 4 market, retail diesel prices edged up by 0.1 cent to average $2.541 gallon. PADD 4 prices were 66.6 cents lower than for the same week in the prior year.
In the West Coast PADD 5 market, retail diesel prices rose slightly by 0.4 cents to average $3.044/gallon. PADD-5 is the only PADD where retail diesel prices are back above the $3 per gallon level. PADD 5 prices were 60.3 cents below their level from last year. Until December 2019, PADD 5 had been the only district where diesel prices were higher than they were in the same week last year. Subsequently, prices rose until this was true in all other PADDs. Prices have fallen dramatically, and the national average price is now well below its level of last year. PADD 5 prices excluding California decreased 1.8 cents to average $2.724/gallon. This price was 59.9 cents below the retail price for the same week last year. California diesel prices rose by 2.3 cents to average $3.311/gallon. Until the week ended June 24, 2019, California had been the only major market where diesel prices were above $4/gallon, where they had been for nine weeks. California prices retreated below $4/gallon from July through October, rose above $4/gallon again during the first three weeks of November, and declined since then until beginning to pick up in June and July 2020. California diesel prices were 59.3 cents lower than they were at the same week last year.
Retail Gasoline Prices
The COVID-19 pandemic continues to have a huge impact on the U.S. gasoline market. Retail prices for gasoline dropped below $2 a gallon in April, and they remained there throughout April, May, and into early June before finally climbing back to the $2/gallon level during the week ended June 8. Until the pandemic, it had been over four years since the average retail price for gasoline had been below the $2/gallon mark. With the phased re-opening of the economy, demand began to rise, as did prices. Unfortunately, so did coronavirus infections, which currently are surging. Some economic activities have been scaled back. Gasoline prices have trended down recently, falling in eight of the last twelve weeks. The current week brought a price increase of 3.6 cents.
During the current week ended December 7, average retail prices for gasoline rose by 3.6 cents to average $2.156/gallon. Prices rose in all PADDs except for the Rocky Mountains PADD 4. Retail gasoline prices for the current week were 40.5 cents per gallon lower than they were one year ago. Until November, gasoline prices had been below their levels of last year. Prices then rose to surpass last year’s levels in all PADDs. The downhill price slide changed this, making gasoline a bargain.
Looking back at historic prices, gasoline prices hit a peak of $2.903/gallon during the week ended October 8, 2018. Prices then slid downward for 14 weeks in a row, shedding a total of 66.6 cents per gallon. In the next 17 weeks, prices marched back up by 66 cents/gallon. Prices came very close to the peak they hit in early October 2018. However, the months of May and the June 2019 brought an easing of prices amounting to 23.3 cents per gallon. The week ended July 1 reversed that downward trend and sent prices up once again. The COVID-19 pandemic caused a price collapse, but prices began to climb back up in May, June, and early July. The second half of July brought a modest easing of prices, which levelled off in mid-August and began to reverse course. September and October brought another price retreat, in keeping with the end of summer driving season, and compounded by the pandemic. The current crude price rally is pulling gasoline prices back up.
For the current week ended December 7, East Coast PADD 1 gasoline retail prices rose by 3.2 cents to average $2.138/gallon. This week’s average price was 34.0 cents/gallon below where it was during the same week last year. Within PADD 1, New England prices rose by 2.1 cents to average $2.119/gallon. Central Atlantic market prices rose by 0.7 cents to average $2.312/gallon. Prices in the Lower Atlantic market rose by 5.0 cents to average $2.032/gallon.
In the Midwest PADD 2 market, retail gasoline prices rose by 5.9 cents to average $2.005/gallon. Six weeks ago, PADD 2 joined PADD 3 in having gasoline prices fall below $2 a gallon, and this week they regained their prior level. PADD 2 prices for the week were 41.9 cents/gallon lower than they were for the same week last year.
In the Gulf Coast PADD 3 market, gasoline prices rose by 4.8 cents to average $1.836/gallon. During the week ended March 16, PADD 3 was the first region where retail prices fell below the $2/gallon level. It was joined subsequently by PADD 2, then by PADD 1, and then by PADD 4. PADD 3 is now the only PADD remaining where prices are below $2/gallon. PADD 3 usually has the lowest average prices among the PADDs. PADD 3 prices for the week were 36.7 cents/gallon lower than for the same week last year.
In the Rocky Mountains PADD 4 market, gasoline pump prices fell by 0.6 cents to average $2.172/gallon. This was the only price decrease among the PADDs. This week’s PADD 4 prices were 61.9 cents/gallon lower than at the same time last year.
In the West Coast PADD 5 market, retail gasoline prices rose slightly by 0.3 cents to average $2.773/gallon. PADD 5 typically has the highest retail prices for gasoline, and until mid-March it had been the only PADD where retail gasoline prices stayed above $3/gallon. Prices this week were 56.4 cents/gallon lower than last year’s price. Prices excluding California declined by 0.4 cents to average $2.459/gallon. This was 60.4 cents/gallon below last year’s price. California prices rose by 0.9 cents during the current week to average $3.041/gallon. California had been the last state where gasoline prices had remained above the $3/gallon line, but this changed the week ended March 30. On Thursday March 19, California led the U.S. by taking the dramatic step of ordering a statewide shelter-in-place to combat the spread of COVID-19. This order affected approximately 40 million people, and it caused a dramatic contraction in fuel demand. The state began to re-open businesses and facilities in May. California gasoline prices gradually crept back up above the $3-a-gallon level in July. COVID-19 cases now are surging, and the state has put on the “emergency brakes.” California retail gasoline prices were 53.9 cents per gallon below their levels from the same week last year.