WASHINGTON -- Gas demand may grow this year at the fastest clip since the 1970s, partly thanks to low gas prices, according to a new report by Raymond James & Associates.
Energy analysts at the St. Petersburg, Fla.-based financial services firm believe that the recent spate of low gas prices--at their lowest point in almost a decade--will drive a 3% or 300,000 barrels-per-day (BPD) surge in U.S. demand for 2015. The year-over-year demand figure could even rise up to 10%, according to recent weekly data.
A few factors are at play, including:
- *Strong economic data show several tailwinds behind the U.S. economy, with another year of strong payroll gains that would likely increase gasoline demand. The United States represents more than 20% of total global oil demand, the analysts note, but only contributed around 6% of demand growth over the past 20 years.
- *Retail gas prices are down $1.22 per gallon compared to the same time last year, the analysts at Raymond James note. The sustained drop in gas prices is putting much more money in consumers' pockets--or more than $1 billion annually for every 1 cent-per-gallon (CPG) drop in retail gas prices.
- *Raymond James projects that vehicle miles traveled will probably bounce back to record levels in 2015 on employment gains and lower gas prices. In fact, according to data released this week by the U.S. Department of Transportation's Federal Highway Administration, vehicle-miles of travel travel rose 1.1% in November 2014 vs. November 2013, which is the greatest increase for that month since 2007. The West, South and Southeast saw the greatest gains in traffic, while the North Central and Northeast regions were slightly off compared to November 2013.
However, there are a few potential headwinds for the most optimistic demand growth projections, Raymond James reports--namely in the area of fuel-efficiency standards and demographic trends.
"Improvements in average vehicle fuel efficiency continue to place downward pressure on gasoline demand as the average new passenger car sold in 2013 posted a record 36 MPG (miles per gallon) fuel efficiency rating," the report states. "Furthermore, fuel efficiency standards will continue to place structural downward pressure on gasoline demand–as CAFE (Corporate Average Fuel Efficiency) standards for light passenger vehicles reach 60 MPG by 2025."
Raymond James also warns that demographic dynamics are another variable, with the retirement of baby boomers and a trend among millennials away from car ownership representing a long-term, downside risk to demand growth.
The analysts predict that the national average retail gas price will probably remain around $2 per gallon for 2015, assuming that oil prices stay near current levels.
"If oil prices remain anywhere near current levels, then this year is likely to prove to show the lowest retail gasoline price in nearly a decade, thereby providing a major boost to gasoline demand and overall consumer purchasing power," the report concludes.
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