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 June 15. Retail prices for gasoline rose for the seventh consecutive week, by 6.2 cents/gallon. Diesel prices rose by 0.7 cents. The COVID-19 pandemic caused severe demand destruction, which is beginning to reverse. 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. That was the low point. Data for the week ended June 5 show that gasoline demand has crept back up to 7,900 kbpd. 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, and it now is recovering in fits and starts, without a defining upward trend. The EIA reported that distillate fuel oil demand first 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. Diesel demand crept back up to 3,164 kbpd by the week ended April 24. Apparent demand weakened again during the week ended May 1, dropping to 3,129 kbpd. A rebound came during the week ended May 8, bringing demand to 3,818 mmbpd. The week ended May 22 saw diesel demand drop once again to 3,266 kbpd, followed by a successive drop to 2,718 kbpd during the week ended May 29. During the week ended June 5, diesel demand popped back up to 3,302 kbpd.
Comparing the most recent weekly data available (for the week ended June) with data from the week ended March 13 (before mandatory shelter-in-place orders began to take hold,) the data show that over a 12-week period, gasoline demand has crept back up to 81% of its March 13 level. Diesel demand has been more volatile, but it was back at 82% of its March 13 level. Diesel demand began the year low, partly because the winter was one of the mildest on record. Diesel stockpiles have grown for 10 consecutive weeks, and high inventory levels place downward pressure on prices.
For the week ended June 15, retail prices for gasoline rose by 6.2 cents/gallon. Retail prices for diesel rose by 0.7 cents/gallon.
The national average price for gasoline was $2.098/gallon. This price was 57.2 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. Now, prices in four of the five PADDs have regained 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 average basis, the retail price for diesel averaged $2.403/gallon—66.7 cents/gallon lower than the price in the same week last year. For the calendar year to date, retail prices for diesel have shed a total of 67.6 cents/gallon.
Futures Prices and Retail Price Outlook
From June 8 to June 12, West Texas Intermediate (WTI) crude oil futures prices retreated by $3.15/b (8.0%,) dipping below $35/b and ending the week slightly above $36/b. This was a downward correction after six weeks of price recovery. Stock markets also stumbled during the week. The drop came on fears of a second wave of COVID-19 infections and news of the U.S. economic recession. May began with a phased economic re-opening. Memorial Day brought social outings, and ever since then, there have been public demonstrations in all fifty states protesting racial inequality and the death of George Floyd while in police custody. Twenty-three states have reported recent increases in coronavirus cases.
From June 8 to June 12, gasoline futures prices fell by 6.74 cents (5.8%.) Diesel futures prices fell by 6.74 cents/gallon (5.8%.) Today, however, future prices are rallying. The Fed announced that it would buy individual corporate bonds on the open market to support the economy. The Fed had noted that other stimulus would be needed from the federal government. President Trump announced a push for a $1 trillion infrastructure stimulus plan. While the relationship between futures prices and retail prices is not immediate or one-for-one, current news is likely to cause a rally that will override last week’s price decline. This suggests that gasoline and diesel retail prices will not ease in the coming week.
Retail Diesel Prices
The week ended June 7 brought a 0.7 cents/gallon increase in the retail price for diesel. For the year to date, diesel prices have fallen by a cumulative 67.6 cents/gallon, a major downward slump that only now seems to be reversing. In 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 slide. For the current week, retail diesel prices rose by 0.7 cents to arrive at an average price of $2.403/gallon. Prices rose in PADDs 2, 3 and 5, while prices fell in PADD 4 and remained unchanged in PADD 1. The national average price for the week was 66.7 cents/gallon below where it was during the same week last year.
In the East Coast PADD 1, diesel prices were unchanged at an average price of $2.501/gallon. Within PADD 1, New England prices eased by 0.1 cent to average $2.628/gallon. Central Atlantic diesel prices rose by 0.1 cent to average $2.673/gallon. Lower Atlantic prices remained flat at an average price of $2.359/gallon. PADD 1 prices were 59.8 cents/gallon below their levels for the same week last year.
In the Midwest PADD 2 market, retail diesel prices increased by 1.6 cents to average $2.256/gallon. This was the largest price increase among the PADDs. Prices were 70.1 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. Six weeks ago, PADD 5 prices also slid below the $3/gallon mark.
In the Gulf Coast PADD 3, retail diesel prices edged up by 0.2 cents to average $2.174/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 22.9 cents below the U.S. average. Prices were 64.6 cents below their level for the same week in the previous year.
In the Rocky Mountains PADD 4 market, retail diesel prices fell by 0.5 cents to an average price of $2.346/gallon. This was the only price drop among the PADDs. PADD 4 prices were 72.6 cents lower than for the same week in the prior year.
In the West Coast PADD 5 market, retail diesel prices rose by 1.2 cents to average $2.930/gallon. PADD 5 prices were 73.6 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 increased slightly by 0.1 cent to average $2.579/gallon. This price was 65.9 cents below the retail price for the same week last year. California diesel prices rose by 2.0 cents to reach an average price of $3.218/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 just the past two weeks. California diesel prices were 78.8 cents lower than they were at the same week last year.
Retail Gasoline Prices
The COVID-19 pandemic is having a massive impact on the U.S. gasoline market. With the phased re-opening of the economy, demand is rising as are prices. U.S. retail gasoline prices last week finally regained the $2/gallon threshold, after falling below this level during the week ended April 6 and remaining there for nine weeks. During the current week ended June 15, average retail prices for gasoline rose by 6.2 cents/gallon to average $2.098/gallon. Prices rose in all PADDs. Retail gasoline prices for the current week were 57.2 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. Until the pandemic, it had been over four years since the average retail price for gasoline was below the $2/gallon mark.
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, 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 recover in May.
For the current week ended June 15, East Coast PADD 1 gasoline retail prices rose by 7.2 cents to arrive at an average of $2.022/gallon. This week’s average price was 53.5 cents/gallon below where it was during the same week last year. Within PADD 1, New England prices increased by 3.7 cents to average $2.037/gallon. Central Atlantic market prices rose by 3.0 cents, reaching an average of $2.156/gallon. Prices in the Lower Atlantic market jumped by 10.9 cents to average $1.933/gallon.
In the Midwest PADD 2 market, retail gasoline prices rose by 3.9 cents to average $2.026/gallon. PADD 2 prices for the week were 51.5 cents/gallon lower than they were for the same week last year.
In the Gulf Coast PADD 3 market, gasoline prices rose by 9.6 cents to average $1.776/gallon. This was the largest price hike among the PADDs. 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. This week, PADD 3 remains the only PADD where prices are still below $2/gallon. PADD 3 usually has the lowest average prices among the PADDs. PADD 3 prices for the week were 56.0 cents/gallon lower than for the same week last year.
In the Rocky Mountains PADD 4 market, gasoline pump prices increased by 5.7 cents, reaching an average price of $2.234/gallon. This week’s PADD 4 prices were 67.6 cents/gallon lower than at the same time last year.
In the West Coast PADD 5 market, retail gasoline prices rose by 4.8 cents to average $2.680/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 77.2 cents/gallon lower than last year’s price. Prices excluding California rose by 6.1 cents to average $2.428/gallon, which was 75.4 cents/gallon below last year’s price. California prices recovered by 3.6 cents to average $2.891/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 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. California retail gasoline prices were 78.7 cents per gallon below their levels from the same week last year.