News out of the United States seems to correlate with long-held predictions of impending peak oil demand. That is, the headlines lead some to believe that the criteria are right for a permanent fall in demand.
However, that view is simplistic and fails to look at the deeper data available which shows a continued robust demand for oil despite record-high oil and gasoline prices and government policies that don't support production growth in the oil and gas industry.
With oil prices in the triple digits, gasoline prices are now averaging $5.00 per gallon or higher in 13 states in the United States. That number is expected to rise, says Patrick DeHaan of GasBuddy, who forecasts that the national average will hit $5 per gallon very soon.
American consumers are spending more than they ever have before to fill up their vehicles. And Natural Gas Liquids prices are so high that Lululemon Athletica (NASDAQ:LULU), the fitness clothing manufacturer and retailer—which, according to one Citi analyst, uses petroleum-based materials in about 75% of its products—announced last week that it has been forced to raise the prices of its apparel.
Meanwhile, the US government seems to be so focused on "transitioning" to alternative energies that it will now declare a national security concern to direct more production of solar panels from private companies.
For years, these were the types of phenomena that analysts predicted would precipitate peak demand. In fact, many analysts are still predicting that peak oil demand is just around the corner. Many of these forecasts are predicated on global demand not returning to pre-pandemic levels.
But demand seems healthy—you just have to look at the data to see this. In the United States, even with sky-high oil and gas prices, the numbers paint a picture of robust and growing demand.
According to the EIA, implied U.S. demand for oil (in other words, product supplied) has surpassed the level of implied demand from 2019 (pre-pandemic) and is on an upward trajectory.
Implied gasoline demand in the U.S. is higher than it was in 2021 and is within 500,000 bpd of pre-pandemic levels. Most notably, however, is that U.S. gasoline demand is rising and has been since mid-May.
Seasonally, gasoline demand is typically a bit flat at this time of year before the summer driving season really kicks off in June. Gasoline inventories in some areas of the United States are at all-time seasonal lows.
Last week, oil refineries in the U.S. processed 10 million bpd of gasoline and the market also drew on gasoline inventories. With the summer driving season just barely getting started, these numbers indicate that even with record-high gasoline prices, demand for gasoline is likely to remain strong.
Goldman Sachs now predicts that oil prices will hit $140 per barrel this summer and gasoline prices will be even higher than they should be at that oil price due to refining limitations.
This column takes no view on the accuracy of particular predictions and has often written about the inaccuracy of such forecasts. It’s noticeable, though, that such a price point could finally cause some demand destruction, leading to lower demand.
However, if oil prices don’t reach such a high level, we could see demand continue to soar.