The week following the July 4 weekend was brutal for those bullish oil, with crude, diesel and gasoline prices receiving a drubbing on bearish fundamental factors and downward revisions to global oil demand, with the international Brent crude price marker dropping to a three-month low, while US crude and gasoline swung to two-month lows July 11.
With the exception of a brief short covering advance later erased, crude oil and gasoline prices have nosedived in July, fully repealing the June surge sparked on worry over supply disruptions in Iraq, with that short-term concern evaporated. Instead, not only is Iraq’s supply deemed secure near term, Libya is boosting output from a near yearlong curtailment due to rebels holding export facilities hostage. Add downward expectations for global oil demand growth because of soggy midyear economic data, and crude and gasoline futures trading on the New York Mercantile Exchange and ICE Futures platforms sold off hard.
Wholesale gasoline prices in the United States tumbled, setting the stage for a drop in retail prices. The Energy Information Administration reported its US price average for all formulations of regular grade gasoline at a $3.678 gallon four-week low July 7.
After sharp growth in May, gasoline demand slowed in June. The EIA said gasoline supplied to the primary market tumbled 233,000 bpd to 8.935 million bpd during the week-ended July 4th, while holding below the five-year average for the third straight week. Implied gasoline demand is down 0.4% for the four weeks ended July 4th, with the year-on-year gain in demand through July 4th narrowing from 1.6% to 1.4%.
Since the preliminary data reflects supply movements in the primary market and not actual consumption by end-users, the drop back in implied demand for the week leading to a major travel holiday weekend might overstate the downside. Suppliers move product closer to retail outlets ahead of busy travel periods for quicker replenishment. While downstream positioning might have swung the demand numbers widely, the slowing demand does fit a trend repeated in recent years in which brief bursts of strong demand are followed by weakness, eerily following the slow moving economic recovery following the Great Recession which ended five long years ago.
Restrained demand growth for gasoline in the US is also caused by improving fuel efficiency in new vehicles. June marked the fifth consecutive month in which the fuel economy for new vehicles sold in the US exceeded 25 miles per gallon, according to researchers Michael Sivak and Brandon Schoettle at the University of Michigan Transportation Research Institute. Sivak and Schoettle said vehicle fuel economy is up 5.4 mpg since October 2007, the month they began their research.