On the last week of May, we officially commence the all-mighty “US driving season,” the oil market’s last grasp at spinning a narrative from the demand side.
This year is particular because we have contradictory data points, from one side, gasoline prices got politicized as anything does these days, it is true that in real terms, retail gasoline prices for “Memorial Day” are the cheapest in decades (so it’s oil), in nominals still above 2020 and above $3/gln which is the figure Trump has in his head.
Notwithstanding, prices alone only explain that much, on the demand side, things are looking brighter according to US Highway Administration total driven miles in urban highways, a proxy for total driving demand is faring better than the last couple of years, so what gives?
The answer is rather obvious: efficiency gains in fuel consumption explain a big chunk of what we have seen over the last 5 years, with “product supplied” stuck in this range for years now.
Can we attribute this to EVs and plug-in hybrids? Not quite, we have seen exponential growth since 2020, sales for all-electric vehicles plateaued last year, plug-in vehicles continue the march onward nonetheless, more so outside of the US.
When it comes to gasoline projected demand, the last few driving seasons proved to be a valid proxy for the overall health of oil products demand, so the question arises: How far is the US from China in terms of the gasoline demand lifecycle? We know that China's gasoline demand peaked in 2023, this US driving season could prove the same for the US.
Anyway, summer is not all about driving, but increasingly about flying, and here we can see a clear trend, as global miles flown are well over last year and is pretty much the only indicator that is above 2019.
So that means jet fuel demand is off the roof, right? Right? Well, if you thought efficiency gains in light vehicles were impressive, wait till you see aircraft efficiency.
Every new generation of engines or aircraft configuration burns 15% less fuel compared to the previous one, and airlines are rushing to replace engines and airframes at unprecedented levels wouldn’t go as far as calling “jet peak demand” as the industry still has a lot of room to grow in term of passanger-miles... and airlines thrive in low oil prices environment.
On the long run this doesn’t look encouraging, but on the long run we all will be dead, so focusing on the present we have a few hiccups, namely, tanks in the west of Suez for gasoline and jet are dry, that should keep these two markets insulated from the rest of the barrel, at least for a couple of weeks, until we see more arrivals of gasoline from the EU, now that Dangote is back online and arb is open, and China that became the Jet swing supplier of the world is slowly ramping up utilization.
Crack spreads have been softening for the last few weeks in anticipation of more refining activity, yet we are not seeing this translated into more inventories, and definitely not translated into more crude oil buying.
Elsewhere, crude oil prices are in total denial mode, you can throw at it any headline and flat price won’t even budge, Iran, OPEC, tariffs…you name it. The most extreme moves we have seen were below $1/bbl… to end up the week like the last.
The little action there is, is in the physical oil
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