A Sudden Drop in U.S. Gasoline Demand Could Spell Trouble for the Oil Markets.......

Last week, the EIA reported that the 4-week average of gasoline supplied (or implied gasoline demand) in the U.S. was 8.2 million bbl/d, the lowest since February 2012. Specifically, the data suggests that U.S. gasoline demand fell by 460,000 bbl/d or 5.2% in January year-over-year (a decline only previously seen during recessions). This data would suggest that U.S. gasoline demand (which accounts for 10% of global consumption) has declined significantly on a year-over-year basis. If the EIA's data is correct, U.S. refiners would now be facing the prospects of weakening gasoline demand for the first time in five years. This would truly be a troubling development for the oil markets especially considering that gasoline use has grown every year since 2012, despite fears that demand has topped out amid the growth of fuel efficient cars, urbanization and an aging population. Coupled with what appears to be weakening U.S. gasoline demand, the EIA today reported a significant build in U.S. crude inventories of 13.8 million barrels (above the upper limit for the season). Slightly offsetting the crude build was a decline of 900,000 barrels in gasoline inventories.

So, given that all other economic indicators in the U.S. are calmly flashing green, is the EIA data on gasoline demand truly accurate and is a recession quietly gripping over the U.S. Interestingly, Goldman Sachs weighed in on the EIA's findings suggesting that the EIA demand data is simply incorrect. Goldman went on to reiterate its outlook for strong global demand growth in 2017 and views the recent U.S. gasoline builds as reflective of transient regional shifts in gasoline supply instead. Overall, market watchers should be careful on solely relying on weekly demand numbers, as these numbers can be erratic and inconsistent week-to-week. On the question of gasoline demand, it is clear that the market will need a few more months of data to fully determine whether the U.S. is actually slipping into a recession. It is important to note that most economists don't see a recession in the U.S., and several energy analysts recently noted that demand picked back up this past week to a more normalized level. Based on these assertions, it would appear that the dramatic year-over-year drop in the EIA's gasoline demand data for January is likely an anomaly that will correct itself going forward.