Once again "Spring Break" is upon us, an annual rite for thousands of college students, families and others who partake in a southward migration to the warm weather, sunny days and ocean breezes that have always been the major lure for those wanting to escape the memory of winter. While some people opt for ocean cruises, others spend their time visiting theme parks or just lying on the beach. Regardless of the type of activity, getting there usually involves a car. With this mass migration occurring mostly during April, it would be logical to expect April gasoline demand to show a seasonal rise over March levels.
For years, the typical summer driving season was considered to occur between the Memorial Day and Labor Day holidays, with peak summer gasoline demand occurring sometime after the Fourth-of-July holiday. While this characterization still holds, in recent years, demand patterns have shifted somewhat to include more robust levels of gasoline demand earlier in the season with a pre-summer peak in gasoline prices. As the figure below illustrates, a significant increase in gasoline demand usually occurs between the months of March and April. Since the year 2000, the median increase has been about 100,000 barrels per day, or somewhere in the range between 1.0-1.5% of total demand.
But, how will gasoline markets fare during April and beyond in light of tight gasoline supplies and recent geopolitical tensions? At this juncture, gasoline markets are beginning to set in motion the traditional supply mechanisms necessary to meet expected peak summer gasoline demand. As mentioned in last week's TWIP, two key statistics to watch are crude oil inputs to refineries and total gasoline imports. Both of these forces will be crucial in determining what level of gasoline market balance to expect in the near and longer terms. Counter to market expectations, crude oil inputs at refineries for the week ending March 30 fell by 115 thousand barrels per day from the prior week, keeping crude oil inputs short of the 15 million-barrels-per-day threshold that they have stayed below since January 12. At the same time, the refinery utilization rate remained unchanged at 87.0 percent, signaling a slower-than-expected return of refinery capacity from scheduled maintenance and unplanned outages. Also, total gasoline imports (finished gasoline plus blending components) fell last week, down 125 thousand barrels per day following a large gain just two weeks earlier. Consequently, as gasoline demand began to grow in earnest in April, gasoline supply has failed to keep pace, resulting in continued significant stock declines and sharp upward pressure on gasoline prices in recent weeks. Nevertheless, while the short term outlook for gasoline markets appears to be tight, the longer term outlook remains unclear. Thus, spring breakers will most likely notice higher gasoline prices during April, compared with last year. Following spring break, however, Memorial Day, Independence Day, and Labor Day vacationers may face different, possibly softer, markets.