Summer oil demand swing shifts to lower gear

By Rebekah Kebede – Analysis

NEW YORK (BestGrowthStock) – After a two years of penny-pinching during the recession, more Americans are planning to kick off the summer driving season by getting on the road this Memorial Day holiday weekend as increased consumer confidence prompts people to splurge on trips.

But the U.S. summer driving season, traditionally a key indicator of sentiment and demand in the top energy consumer and a regular feature for oil traders attuned to subtle shifts in consumption, ain’t what it used to be.

The additional demand for gasoline caused by the seasonal surge in holiday road travel has shrunk steadily over time, nearly halving in the past decade alone.

Last year, gasoline demand in the summer months of May through September averaged 9.2 million barrels per day, only 3.2 percent higher than the rest of the year.

The downward trend in gasoline demand has gone on for decades: in the 1950s, summer gasoline demand was on average 11.7 percent higher than the rest of the year. By the 1990s, the average demand increase during the summer months was down to 4.6 percent.

Increased driving during the rest of the year may be one of the factors rendering summer driving season less significant.

“In the ’40s and ’50s, we weren’t quite as mobile a country. A lot of people lived in the big cities, took public transportation and the only time they would really drive was when they took a summer vacation… now we’re pretty much mobile year-round,” said Phil Flynn, an oil analyst at PFGBest in Chicago.

Long commutes, congestion and suburbanization may all be adding to the amount of gasoline Americans consume throughout the year, minimizing any increase in consumption during the summer.

“With the increasing number of cars per household, the daily miles driven to work by each household may have increased while the number of vacations taken by each household has remained relatively unchanged,” said Tancred Lidderdale, an economist with the EIA.

Changing attitudes toward travel are also a factor in decreasing the spike in summer gasoline demand, experts said.

“People’s perception of summer vacation has probably evolved… it’s all year long,” said Jeff Lenard, spokesman for the National Association of Convenience Stores.


Despite the long-term decline in increases in summer gasoline demand, this year will see an increase in summer travel as many Americans feel that the worst of the recession has blown over, experts said.

“Definitely some of these vacations will have a hint of survival reward to them,” said Irma Zandl, an expert on consumer behavior and president of the Zandl Group.

After a brutal recession, many will be thinking, “We made it — we survived,” she said.

Jeanie Davis, a New York real estate agent in her 40s who said she planned to take a road trip to Vermont with friends, is one of those who feels that the economy is on the mend.

“In general, I feel optimistic about the economy. Home inventory is down, prices are up and gas prices seem to have gone down,” Davis said.

And Davis is not alone — the number of Americans who plan to take a road trip this Memorial Day weekend is up nearly 6 percent from last year according to the travel and auto group AAA and experts say the trend is likely to continue through the rest of the summer.

Fifty-one percent of Americans are planning some type of summer vacation this year, according to the American Express Spending & Saving Tracker, while a Deloitte survey put the number at 65 percent.

The increase in the number of travelers will result in a 0.7 percent increase in gasoline demand from May through September compared with the same period a year ago, according to U.S. Energy Information Administration estimates.

“We will see some year-over-year gains in gasoline demand,” said Jim Ritterbusch, president of energy analysts Ritterbusch & Associates, Galena, Illinois, adding that most of the increase is tied to consumer sentiment.

“Last year at this time, there was just so much uncertainty out there. Everybody was scared. This year, only about half of the people are scared,” he said.

Although some consumers are feeling more free with their cash, there are also plenty of Americans who still feel the chill of the recession and are scaling back on their summer vacations.

“A high level of unemployment remains a significant check on demand growth for gasoline. As long as unemployment stays above 9 percent, it’s going to be difficult for gasoline demand to post much of an increase,” Ritterbusch said.

Some travelers are being cautious by staying closer to home than they normally would — with 89 percent of those taking a vacation staying within the United States, according to American Express.

“I surely wouldn’t anticipate any banner Memorial Day weekend. Probably better than last year because things are a little better, gas prices are down a little bit,” said David Walsh, owner of Woco Oil Co, a wholesale supplier of fuels to the Mid-Atlantic states.

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(Reporting by Rebekah Kebede; Additional reporting Karina Ioffee and Deepa Seetharaman in New York, Andrew Stern in Chicago; Tim Gaynor in Phoenix)

Summer oil demand swing shifts to lower gear