Gasoline prices at the pump have experienced a notable increase compared to a year ago, which has contributed to subdued demand for fuel as the summer driving season approaches. Investors across various markets are closely monitoring signs indicating whether U.S. consumers are becoming more hesitant to spend money.
According to Tyler Richey, co-editor at Sevens Report Research, gasoline demand serves as a crucial indicator of consumer spending trends, especially given its high-frequency nature. Recent data from the Energy Information Administration (EIA) revealed that finished U.S. motor gasoline supplied, which serves as a proxy for demand, averaged 8.423 million barrels per day for the week ending April 19, marking the lowest weekly figure in two months.
The decline in gasoline demand has coincided with concerns about stagflation, a combination of stagnant economic growth and high inflation. Economic data in late April hinted at stagflationary pressures, with consumer demand for fuel further amplifying these worries.
Over the past four weeks ending May 3, finished U.S. motor gasoline supplied averaged 8.6 million barrels per day, reflecting a 4% decrease compared to the same period last year. This decline in demand can be attributed to the impact of inflation on consumers’ purchasing power, leading to reduced discretionary spending.
Inflationary pressures have been evident across various sectors, including grocery stores, theaters, hotels, and restaurants, contributing to a reluctance among consumers to engage in non-essential spending activities. The rise in fuel costs has added to these concerns, with the average price of regular unleaded gasoline reaching $3.641 per gallon, representing a 14-cent increase from a year ago.
Weakness in gasoline demand is not only reflective of consumer sentiment but also improvements in vehicle efficiencies. Despite an increase in vehicle miles traveled, gasoline consumption has not kept pace due to advancements in vehicle technology.
Looking ahead, monitoring gasoline demand will remain crucial for gauging consumer sentiment and economic activity. Any further decline in demand could raise concerns about a potential recession and lead to increased volatility across asset classes, including oil prices.
As the summer driving season approaches, uncertainties surrounding consumer confidence and inflation may impact travel behavior and fuel demand. While high retail prices could potentially shorten road travel, consumers have historically defied higher prices for vacations post-COVID. However, factors such as the Atlantic hurricane season could introduce additional volatility to gas prices if Gulf of Mexico infrastructure is disrupted.
Given these dynamics, investors will continue to closely monitor gasoline demand as a key barometer of economic health and consumer behavior, with implications for various sectors of the economy and financial markets.