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 1. Retail prices for gasoline rose for the fifth consecutive week after a nine-week downward spiral. Diesel prices declined slightly, failing to build on last week’s brief hiatus from a downward slide that began the second week of January. The COVID-19 pandemic caused severe demand destruction, which now 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 of 4,631 kbpd in just four weeks. That was the low point. Data for the week ended May 22 show that gasoline demand has crept back up to 7,253 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. 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.
Comparing the most recent weekly data available (for the week ended May 22) with data from the week ended March 13 (before mandatory shelter-in-place orders began to take hold,) the data show that over a 10-week period, gasoline demand has crept back up to 75% of its March 13 level. Diesel demand has recovered to 81% of its March 13 level.
For the week ended June 1, retail prices for gasoline rose by 1.4 cents/gallon. Retail prices for diesel declined slightly by 0.4 cents/gallon. This handed back last week’s small gain of 0.4 cents/gallon. Last week’s small increase broke a 19-week streak of falling prices for diesel, but it was a small upturn lasting only one week.
The national average price for gasoline was $1.974/gallon. This price was $0.833/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. Now, prices in three of the five PADDs are below 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 $2.386/gallon—75.0 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 69.3 cents/gallon.
Collapse of Futures Prices and Retail Price Outlook
During the week May 26 to May 29, which included Memorial Day, West Texas Intermediate (WTI) crude oil futures prices rose modestly by $0.38/b (1.1%.) This was the fifth week of price recovery following a volatile downward trend punctuated with sharp collapses. This included the historical event of seeing WTI crude futures for May delivery close at -$37.63/b on April 20. Infrastructure limitations and loss of liquidity had caused a collapse of never-before-seen proportions, where traders were forced to pay others to accept their contracts rather than take physical delivery of crude oil. During this collapse, June delivery contracts had remained in the $20-$22/b range, allowing many to conclude that this was closer to the “true” value of WTI crude. Crude futures prices soon regained this level. WTI futures prices have now moved to July 2020 as the next forward month, and prices have strengthened even further. WTI prices currently have regained the $36/b level. The month of May began with partial re-opening of businesses and economic activities. Many people attended social outings over the Memorial Day weekend, feeding into the oil price rally. This has raised concerns that new infections may set back the progress made flattening the curve, but optimism remains, and many believe that breakthroughs will be made in coronavirus vaccines and treatments.
During the week of May 26 to May 29, gasoline futures prices retreated by 1.99 cents (1.9%.) Diesel futures prices fell by 4.01 cents/gallon (3.9%.) Currently, however, futures prices are rising. While the relationship between futures prices and retail prices is not immediate or one-for-one, the current week’s rise of futures prices suggests that gasoline and diesel retail prices will rise in the coming week.
Retail Diesel Prices
The week ended June 1 brought a 0.4 cents/gallon decrease in the retail price for diesel, handing back the 0.4 cents/gallon gained last week. This year to date, diesel prices have fallen by a cumulative 69.3 cents/gallon. 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 Feb. 3, 2020. Prices then continued to slide. For the current week, retail diesel prices slid by 0.4 cents to arrive at an average price of $2.386/gallon. For the current week, diesel prices declined in all PADDs. The national average price for the week was 75.0 cents/gallon below where it was during the same week last year.
In the East Coast PADD 1, diesel prices fell by 0.6 cents to settle at an average price of $2.492/gallon. Within PADD 1, New England prices fell by 0.9 cents to average $2.615/gallon. Central Atlantic diesel prices were unchanged at an average of $2.666/gallon. Lower Atlantic prices fell by 1.0 cent to an average price of $2.349/gallon. PADD 1 prices were 66.1 cents/gallon below their levels for the same week last year.
In the Midwest PADD 2 market, retail diesel prices declined by 0.4 cents to average $2.226/gallon. Prices were 80.0 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 declined by 0.4 cents to average of $2.171/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 21.5 cents below the U.S. average. Prices were 70.4 cents below their level for the same week in the previous year.
In the Rocky Mountains PADD 4 market, retail diesel prices fell by 0.8 cents to arrive at an average of $2.340/gallon. This was the largest price decrease among the PADDs. PADD 4 prices were 82.3 cents lower than for the same week in the prior year.
In the West Coast PADD 5 market, retail diesel prices eased by 0.2 cents to average $2.900/gallon. PADD 5 prices were 86.0 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 down by 0.1 cent to average $2.560/gallon. This price was 76.0 cents below the retail price for the same week last year. California diesel prices also eased by 0.1 cent to settle at an average price of $3.181/gallon. (Note that there may be an error in this week’s price data: the EIA reports that PADD 5 prices fell by 0.2 cents/gallon, but that prices in California and outside California both fell by only 0.1 cent/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 this past week. California diesel prices were 92.8 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. U.S. retail gasoline prices fell below the $2/gallon threshold during the week ended April 6, and they have remained below $2/gallon for seven weeks despite the price recovery seen during the past five weeks. Average retail prices rose by 1.4 cents/gallon to average $1.974/gallon during the current week ended June 1. Prices rose in all PADDs. Retail gasoline prices for the current week were 83.3 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. It has 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, 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 is causing a severe contraction in demand as people shelter in place, and many jobs have been lost. The U.S. Bureau of Labor Statistics reported in its monthly Employment Situation report, also known as the “Jobs Report,” that the U.S. unemployment rate surged to 14.7% in April. According to EIA data, gasoline demand during the week ended May 22 was about 25% lower than it had been during the week ended March 13.
For the current week ended June 1, East Coast PADD 1 gasoline retail prices rose by 0.7 cents to arrive at an average of $1.913/gallon. Nine weeks ago, PADD 1 joined PADDs 2 and 3 in having retail prices drop below the $2/gallon line. This week’s average price was 75.1 cents/gallon below where it was during the same week last year. Within PADD 1, New England prices increased by 0.3 cents to average $1.940/gallon. Central Atlantic market prices rose by 1.4 cents, reaching an average of $2.096/gallon. Prices in the Lower Atlantic market rose by 0.3 cents to average $1.790/gallon.
In the Midwest PADD 2 market, retail gasoline prices rose by 0.8 cents to average $1.893/gallon. Last month, PADD 2 prices had for a time fallen below prices in the U.S. Gulf Coast PADD 3 market, a rare occurrence. PADD 2 prices for the week were 85.3 cents/gallon lower than they were for the same week last year.
In the Gulf Coast PADD 3 market, gasoline prices rose by 2.1 cents to average $1.619/gallon. Eleven weeks ago, PADD 3 was the first region where retail prices fell below the $2/gallon level. It was joined by PADD 2, then by PADD 1, and then by PADD 4. PADD 3 usually has the lowest average prices among the PADDs. PADD 3 prices for the week were 80.5 cents/gallon lower than for the same week last year.
In the Rocky Mountains PADD 4 market, gasoline pump prices jumped by 10.2 cents, reaching at an average price of $2.093/gallon. This was the largest price hike among the PADDs, and it brought PADD 4 prices back above the $2/gallon level. This week’s PADD 4 prices were 88.7 cents/gallon lower than at the same time last year.
In the West Coast PADD 5 market, retail gasoline prices rose by 2.6 cents to average $2.578/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 a hefty $1.018/gallon lower than last year’s price. Prices excluding California rose by 2.0 cents to average $2.318/gallon, which was 99.5 cents/gallon below last year’s price. California prices recovered by 3.2 cents to average $2.798/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 a massive $1.032 per gallon below their levels from the same week last year.
