U.S

U.S. Gasoline Demand Rebound Strong, But Could Be Over

US finished gasoline demand has been on a steady uptrend since bottoming back in early April, around the very same time the initial virus outbreak peaked.

Gasoline demand will give investors an indication of how much economic activity is being done. Whether it be driving to work, driving to the store or driving for a trip somewhere, in many cases, driving is an input cost to some kind of economic activity.

This chart below of finished gasoline supplied per week is that of a 4-week average:

Source: EIA

Looking back, we can see that when the US economy transitioned to a “work from home, go to school from home” economy as much as it could, gasoline demand dropped hard and fast.

Also, the fear index was high from the virus due to ignorance about its full effects and danger, giving many of us reason to stay home as much as we possibly could.

As cases and deaths dropped day in and day out, confidence returned to get back out and start doing things that contribute to economic activity again.

Here is a look at the weekly data, from a year-over-year perspective from March until the first week of July:

Source: EIA

Demand for gasoline bottomed the very first week of April at nearly half of what was consumed the prior year.

From that week on, the recovery began, in what appears to have been in stages. For example, from the week of May 22nd until the week of June 12th, 4 weeks in a row, gasoline demand was stuck at about 20% below the year-before levels.

Then, as more and more of the economy opened up and confidence returned with more and more data about the death rates and the percent with only mild to no symptoms coming out, we’ve been at only about 10% below year-ago levels.

This is certainly shaping up to be closer to a V- or least check mark-shaped recovery in gasoline demand in the US.

Again, gasoline demand is a tell on economic activity. Driving to work, the store, having something ordered and delivered to your home like food or building materials, gasoline acts as an input cost to getting something done.

Of course, there is non-market activity with gasoline demand as well, which would include driving to friend or family’s house, the park, a protest or what have you.

Jobs

Similarly, the percent dropoff in overall non-farm payrolls also bottomed in April and has been coming back strong. Jobs were estimated to be down 8.59% in June relative to the year before.

No doubt, there has been a strong initial rebound in economic activity. Very likely, the stimulus programs and expanded unemployment benefits have greatly contributed to this strong rebound. The American people’s drive to want to work and live has also made this recovery possible.

Reservations On Why The Rebound In Gasoline Demand Is Over

Gasoline demand is running at about 10% below year-ago levels. This makes a lot of sense to me. My church is still not having in-person services, many are still working from home, and there is still a large degree of caution in public interaction, which includes doing economic activities that involve public spaces like hotels, restaurants and bars.

I live near Cornell University, which has just announced Fall sports will be cancelled. The school is going to be having an abbreviated semester altogether, and that will mean much less economic activity up here in the Fall.

The boost in unemployment checks from the CARES Act runs out in just 3 weeks.

Given all we now know about how the economy is going to look in the Fall, between the continued uncertainty and already cancelled activities, the outlook for gasoline demand looks increasingly like no more than 90% of what was consumed a year ago.

I would not be surprised if we go back to 80% levels in September given the state of cancellations ongoing in the economy and the likelihood of new lockdowns being enforced.

Lower gas demand should equal lower economic activity.

Stock Market

Source: BigCharts.com

The rebound in the S&P 500 index so far has peaked in the early part of the second week of June. That’s about the time when the % difference in gasoline demand was the smallest, when it was down just 9.06% in the week ending June 19th.

Similar to gasoline demand, the stock rally is running out of steam. In the event that gasoline demand begins to fall more on a year-over-year basis, that will, in turn, contribute to failed hopes of a full recovery, which could jeopardize hopes of a continued stock market rally.

Conclusion

Gasoline demand is a good metric for real-time economic activity. The data comes out on Wednesday each week and can be found on the U.S. Energy Information Agency website.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Seeking Alpha

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