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 January 4. Prices rose for both fuels. Gasoline prices rose by 0.6 cents per gallon, while diesel prices rose by 0.5 cents per gallon. Retail prices for gasoline averaged $2.249/gallon. Diesel prices averaged $2.640/gallon. The COVID-19 pandemic caused severe demand destruction. Demand has been recovering gradually, but it has not regained pre-pandemic levels. COVID-19 infections continue to surge. The rollout of COVID-19 vaccines initially caused market optimism, yet the pace of inoculations has been far slower than the pace of vaccine distribution. Some regions report that logistical challenges are limiting vaccinations to 10-25% of the available vaccine. Fuel prices have been strengthening alongside stock markets, but the upward momentum has slowed. There may be a decision today from the OPEC+ group concerning production cuts.
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 7,600-8,900 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 8,128 kbpd during the most recent week ended December 25. 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 December 25 showed diesel demand retreating to 3,594 kbpd, down from 4,174 kbpd the prior week.
For the week ended January 4, retail prices for gasoline rose by 0.6 cents/gallon. Retail prices for diesel rose by 0.5 cents/gallon.
The national average price for gasoline was $2.249/gallon. This price was 32.9 cents/gallon below the price for the same week one year ago. In February 2020, retail prices for gasoline were higher than they had been in February 2019. The COVID-19 pandemic caused U.S. average gasoline prices to fall below $2/gallon throughout the months of April and May, regaining this average level in June. Currently, retail gasoline prices are above $2 a gallon in all PADDs except for the U.S. Gulf Coast PADD 3. From late-November 2019 through early March 2020, 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 $2.640/gallon—43.9 cents/gallon lower than the price in the same week last year.
Futures Prices and Retail Price Outlook
Futures market prices were sedate over the Christmas and New Year’s holidays. Markets were closed on both holidays. During the Monday-to-Thursday week December 28 to December 31, West Texas Intermediate (WTI) crude oil futures prices rose slightly by $0.12 per barrel (0.2%.) WTI futures closed the week at $48.52 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 January 5, 2021, WTI crude futures prices are hovering in the range of $48.00-$48.50 a barrel. Traders are awaiting a decision from the OPEC+ group concerning the production cut agreement.
During the Monday-to-Thursday week December 28 to December 31, gasoline futures prices rose by 2.34 cents per gallon (1.7%.) Diesel futures prices fell by 1.79 cents per gallon (1.2%.) Futures prices for gasoline appear to be easing, while diesel futures prices are stable today. While the relationship between futures prices and retail prices is not immediate or one-for-one, retail prices may change little this week. The recent upward trend has slowed.
Retail Diesel Prices
The week ended January 4 brought a 0.5 cents per gallon increase in the retail price for diesel to reach an average price of $2.640/gallon. Prices rose in all PADDs except for the Rocky Mountains PADD 4. The national average price for the week was 43.9 cents/gallon below where it was during the same week last year.
For the year to date, diesel prices have fallen by a cumulative 43.9 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 November and December 2020.
In the East Coast PADD 1, diesel prices rose by 0.8 cents to reach an average of $2.667/gallon. Within PADD 1, New England prices rose by 1.3 cents to average $2.665/gallon. Central Atlantic diesel prices increased by 0.7 cents to average $2.857/gallon. Lower Atlantic prices rose by 0.6 cents to average $2.540/gallon. PADD 1 prices were 45.3 cents/gallon below their levels for the same week last year.
In the Midwest PADD 2 market, retail diesel prices rose by 0.7 cents to average $2.592/gallon. Prices were 38.5 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 in November.
In the Gulf Coast PADD 3, retail diesel prices rose by 0.5 cents to average $2.398/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 24.2 cents below the U.S. average. Prices were 43.0 cents below their level for the same week in the previous year.
In the Rocky Mountains PADD 4 market, retail diesel prices eased by 0.2 cents to average $2.586 gallon. PADD 4 prices were 51.4 cents lower than for the same week in the prior year.
In the West Coast PADD 5 market, retail diesel prices rose by 0.3 cents to average $3.116/gallon. PADD-5 is the only PADD where retail diesel prices are back above the $3 per gallon level. PADD 5 prices were 50.0 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 edged up 0.1 cent to average $2.771 gallon. This price was 49.3 cents below the retail price for the same week last year. California diesel prices rose by 0.5 cents to average $3.404/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, then weakened until June and July 2020. California diesel prices were 49.1 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. Gasoline prices mainly trended down this autumn. December brought a price recovery, which now has been sustained for six consecutive weeks. The current week brought a small price increase of 0.6 cents.
During the current week ended January 4, average retail prices for gasoline rose by 0.6 cents to average $2.249/gallon. Prices rose in PADDs 1 and 5, fell in PADDs 2 and 4, and remained flat in PADD 3. Retail gasoline prices for the current week were 32.9 cents per gallon lower than they were one year ago.
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 market rally is pulling gasoline prices back up.
For the current week ended January 4, East Coast PADD 1 gasoline retail prices rose by 2.1 cents to average $2.219/gallon. This week’s average price was 32.0 cents/gallon below where it was during the same week last year. Within PADD 1, New England prices rose by 2.3 cents to average $2.236/gallon. Central Atlantic market prices rose by 3.0 cents to average $2.387/gallon. Prices in the Lower Atlantic market rose by 1.5 cents to average $2.110/gallon.
In the Midwest PADD 2 market, retail gasoline prices fell by 1.9 cents to average $2.151/gallon. PADD 2 prices for the week were 28.3 cents/gallon lower than they were for the same week last year.
In the Gulf Coast PADD 3 market, gasoline prices were unchanged at $1.928/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 34.9 cents/gallon lower than for the same week last year.
In the Rocky Mountains PADD 4 market, gasoline pump prices fell by 0.3 cents to average $2.188/gallon. This week’s PADD 4 prices were 45.4 cents/gallon lower than at the same time last year.
In the West Coast PADD 5 market, retail gasoline prices rose by 1.5 cents to average $2.807/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 40.1 cents/gallon lower than last year’s price. Prices excluding California rose by 1.8 cents to average $2.469/gallon. This was 47.3 cents/gallon below last year’s price. California prices rose by 1.5 cent during the current week to average $3.100/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. The state re-instituted some safety measures in response to the current surge in coronavirus infections. California retail gasoline prices were 32.8 cents per gallon below their levels from the same week last year.