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 sixth consecutive week, by 6.2 cents/gallon. Diesel prices rose by one cent. 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 29 show that gasoline demand has crept back up to 7,549 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.

Comparing the most recent weekly data available (for the week ended May 29) with data from the week ended March 13 (before mandatory shelter-in-place orders began to take hold,) the data show that over an 11-week period, gasoline demand has crept back up to 78% of its March 13 level. Diesel demand has been more volatile, and it was back at only 68% of its March 13 level. Diesel demand began the year at a low level, partly because the winter was one of the mildest on record. Diesel stockpiles have grown for nine consecutive weeks, and high inventory levels place downward pressure on prices.

Collapse of Futures Prices and Retail Price Outlook

During the week June 1 to June 5, West Texas Intermediate (WTI) crude oil futures prices rose by $2.12/b (6.0%.) This was the sixth 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. WTI prices currently have regained the $38/b level, and prices have been touching highs of $40/b. 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. Ever since, there have been public demonstrations in protest of racial inequality and the death of George Floyd while in police custody. This has raised concerns that new infections may set back the progress made flattening the curve. The Johns Hopkins Coronavirus Resource Center reports that new COVID-19 cases in the U.S. are now trending up on a 5-day average.

During the week of June 1 to June 5, gasoline futures prices rose by 7.77 cents (7.3%.) Diesel futures prices rose by 3.96 cents/gallon (3.8%.) Future prices are declining today, but they are holding some of last week’s gains. While the relationship between futures prices and retail prices is not immediate or one-for-one, the trend of futures prices suggests that gasoline and diesel retail prices will rise only modestly in the coming week.

 

Retail Diesel Prices

The week ended June 8 brought a 1.0 cent/gallon increase in the retail price for diesel. For the year to date, diesel prices have fallen by a cumulative 68.3 cents/gallon, a major downward slump that has not reached a clear end. 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 rose by 1.0 cent to arrive at an average price of $2.396/gallon. Prices rose in all PADDs. The national average price for the week was 70.9 cents/gallon below where it was during the same week last year.

In the East Coast PADD 1, diesel prices rose by 0.9 cents to reach an average price of $2.501/gallon. Within PADD 1, New England prices rose by 1.4 cents to average $2.629/gallon. Central Atlantic diesel prices rose by 0.6 cents to average $2.672/gallon. Lower Atlantic prices increased by 1.0 cent to reach an average price of $2.359/gallon. PADD 1 prices were 62.4 cents/gallon below their levels for the same week last year.

In the Midwest PADD 2 market, retail diesel prices increased by 1.4 cents to average $2.240/gallon. Prices were 76.2 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 0.1 cent to average of $2.172/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 22.4 cents below the U.S. average. Prices were 67.1 cents below their level for the same week in the previous year.

In the Rocky Mountains PADD 4 market, retail diesel prices rose by 1.1 cents to arrive at an average of $2.351/gallon. PADD 4 prices were 76.3 cents lower than for the same week in the prior year.

In the West Coast PADD 5 market, retail diesel prices rose by 1.8 cents to average $2.918/gallon. This was the largest price increase among the PADDs. PADD 5 prices were 79.7 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 by 1.8 cents to average $2.578/gallon. This price was 70.4 cents below the retail price for the same week last year. California diesel prices also rose eased by 1.8 cents to arrive at an average price of $3.198/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 86.0 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 this week finally regained the $2/gallon threshold, after dipping below this level during the week ended April 6 and remaining there for the next nine weeks. During the current week ended June 8, average retail prices for gasoline rose by 6.2 cents/gallon to average $2.036/gallon. Prices rose in all PADDs. Retail gasoline prices for the current week were 69.6 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 caused a severe contraction in demand.

For the current week ended June 8, East Coast PADD 1 gasoline retail prices rose by 3.7 cents to arrive at an average of $1.950/gallon. Ten 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 67.0 cents/gallon below where it was during the same week last year. Within PADD 1, New England prices increased by 6.0 cents to average $2.00/gallon. Central Atlantic market prices rose by 3.0 cents, reaching an average of $2.126/gallon. Prices in the Lower Atlantic market rose by 3.4 cents to average $1.824/gallon.

In the Midwest PADD 2 market, retail gasoline prices rose by 9.4 cents to average $1.987/gallon. This was the largest price hike among the PADDs. PADD 2 prices for the week were 63.3 cents/gallon lower than they were for the same week last year.

In the Gulf Coast PADD 3 market, gasoline prices rose by 6.1 cents to average $1.680/gallon. Twelve 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 68.2 cents/gallon lower than for the same week last year.

In the Rocky Mountains PADD 4 market, gasoline pump prices increased by 8.4 cents, reaching at an average price of $2.177/gallon. This week’s PADD 4 prices were 77.1 cents/gallon lower than at the same time last year.

In the West Coast PADD 5 market, retail gasoline prices rose by 5.4 cents to average $2.632/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 88.9 cents/gallon lower than last year’s price. Prices excluding California rose by 4.9 cents to average $2.367/gallon, which was 88.5 cents/gallon below last year’s price. California prices recovered by 5.7 cents to average $2.855/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 89.0 cents per gallon below their levels from the same week last year.