The US pump price for a gallon of gasoline has hit an eight-month low of just below $2.71/gallon. This is good news for consumers, of course, but it underscores the continuing weakness in the US economy.
Low consumer confidence and high unemployment combine to keep people out of their cars. Fewer vacations, even fewer trips to the mall, reduce demand for gasoline as consumers continue to search for ways to re-trench. It might be said that the US is over-supplied with gasoline and crude oil.
The US is still the world’s single largest consumer of crude oil, consuming nearly 19 million barrels every day. Gasoline and diesel fuel account for about 12.7 million barrels of that daily consumption. US consumption peaked in 2005 at 20.8 million barrels/day and hit a 10-year low of 18.77 million barrels/day in 2009.
Part of the reason for the falling price of gasoline is that US cars are becoming more fuel efficient. Another reason is an increase in the amount of ethanol in the US fuel supply. The US now produces and consumes about 854,000 barrels/day of ethanol. That’s more than triple the level of ethanol consumption in 2005.
A third reason for lower prices is the amount of gasoline in US storage tanks. Commercial crude storage tanks are holding about 354 million barrels of crude and 223 million barrels of gasoline. Both quantities are well above five-year historical averages.
The crude oil market has arguably failed to pay attention to the overall condition of the economy, choosing instead to focus on the growing demand for crude from developing countries, particularly China. What the market didn’t see coming was the glaring weakness in Europe and the falling demand in the US during what is normally the heaviest driving season.
US crude oil and gasoline consumption is likely to continue falling, but the US does not operate outside the global oil trade, so prices won’t continue to fall significantly unless the global economy takes a turn for the worse. If that happens, we could see a return to the crude prices of early 2009 and pump prices once again below $2/gallon. That will only seem like good news.
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