Will US summer gasoline demand beat expectations?

US gasoline demand during the peak summer driving season this year is almost certain to rise for the second time in two years, buoyed by a recovering economy. But by just how much is open to question, with some market observers arguing that the US government estimates are failing to capture the likely size of the increase.

After several years of stagnating demand, gasoline demand in 2013 rose by 90,000 b/d, or 1.1%, above 2012 levels. And this year, the US Energy Information Administration is forecasting demand will rise again to 8.79 million b/d, 20,000 b/d above last year.

EIA in its May Short-Term Energy Outlook forecast summer gasoline demand would average 8.951 million b/d. The US Memorial Day holiday in late May is traditionally considered the start of the summer driving season.

But EIA’s May 6 estimate already appears to have missed the mark. The agency recently said the four-week moving average of US gasoline demand was 9.2 million barrels in the week ended May 30.

And even that may be too low, analyst Carl Larry, president of Oil Outlooks and Opinions, told Platts.

“We are continuing to see more jobs, higher auto sales and have an adjusted production of gasoline over 10 million b/d for nearly 6 weeks in a row in May. We all know demand rises in June, then goes higher in July and peaks in August,” he said.

“Gasoline demand now is actually higher than the numbers say,” Larry continued. “The biggest change has been the decline in imports and that makes our demand calculations look a lot lower than it really is.”

He said the US this year will import only about 540,000 b/d of gasoline, roughly half of the 1.1 million b/d the country imported in 2007. Throw in even the lower level of imports and Larry puts US gasoline demand now at nearly 9.4 million b/d. And he predicted that it will hit a record this summer.

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It will be interesting to see whether EIA revises its May estimates upward when it releases the June STEO on Tuesday.

EIA data shows total gasoline imports in March were 36,000 b/d, down substantially from the record high of 866,000 b/d hit in October 2005 when Hurricanes Katrina and Rita, which crippled a good portion of US Gulf refining capacity, and also below the 44,000 b/d imported in 2013.

US gasoline imports are down largely because European refiners, who have traditionally targeted East Coast markets, are struggling to compete because of Brent crude’s price premium to WTI.

And US refiners, looking to take advantage of the higher demand and lower imports, are running their facilities as close to flat out as they can.

EIA estimates US refineries will operate this summer at a 90.9% capacity utilization. One factor that could change that? The weather. The 2014 Atlantic hurricane season began June 1 and while forecasters are predicting a below-average season, it would only take one major storm in the right place along the Gulf Coast to reduce that 90.9% utilization rate.

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