Slow Recovery & Gasoline Demand

Analysts adjust economic outlooks as 2011 falls short of expectations

Steve Holtz, Editor in Chief, CSP Daily News

HOUSTON -- As 2011 dawned, many analysts were primed for an economic recovery in the United States that would raise all boats: manufacturing, trucking and, as a result, gasoline demand. But half way through the year, it's clear this is not the return to form that was hoped, according to a TelventDTN webinar yesterday.

"Positive developments in late 2010, including a more confident consumer, supported the view that the economic expansion would be on firm footing this year. That sentiment drove higher estimates for fuel demand since an expanded economy uses more energy," said [image-nocss] Brian Milne, energy editor and product manager for TelventDTN.

"Since then, however, the view has changed as evidence emerged that U.S. economic growth is sluggish," he said. "First quarter GDP grew at only 1.8%, and that has prompted a number of analysts to dial back rosier growth forecasts for the rest of the year. Forecasts for the second quarter are around 2% growth."

What changed? Milne summed that up with a quote from Federal Reserve Chairman Ben Bernanke from earlier this week: "The rise in commodity process has impaired consumer confidence and spending while increasing the rate of inflation."

During the "Crude, Gasoline, Heating Oil Quarterly Outlook," Milne noted that global energy consumption "jumped 5.6%" in 2010 as the world economy expanded by 4.9%.

Oil demand grew as well in 2010, "following the first two-year period in which oil demand fell in each of those years since the early 1980s."

The rub for the United States is that much of that demand growth was driven by economic growth elsewhere.

"The largest oil-consuming nation is the United States, where demand averaged 19.148 million barrels per day last year," Milne said, "which amounted to 21.1% of total world demand. U.S. oil-demand share of global demand has been sliding.... Two factors that closely link the negative gasoline demand in the United States are high retail prices and high unemployment, and we have both."

Thechart (left) from TelventDTN shows the relationship between unemployment and fuel demand.
One analyst, he noted, anticipates "normal growth for the U.S. economy through 2013, and normal growth refers to 3% GDP growth. That typically is combined with an increase in jobs of 150,000 to 200,000 per month. But the problem is, this is not a real recovery;... in a real recovery, the economy should experience 5-6% growth."

With uncertainty about the economy returning in early 2011, Milne noted the run up of crude oil prices to a $114.83 32-month high on May 2, "and it then tumbled to $94.63, a 2.5-month low, on May 6, making a $20.20 range" in 4 days.

For the near future, Milne anticipates a continued drop in oil prices. "We're likely to see a brief dip below $90 in the coming weeks, with [futures] contracts slipping into the mid-$80s," he said. That, however, will be followed by another run up in prices.

"I would expect the contract to again ramp higher and get above $100 per barrel in the third quarter," he said. "We could see a test of the May high, ... but this will depend a great deal on the performance of the U.S. dollar. More likely, expect the contracts to settle within a loose $90 to $105 range before rising in the fourth quarter."

Houston-based TelventDTN delivers information tailored to the specific needs of more than a dozen different markets and segments, including agriculture, refined fuels, commodities and futures trading, public safety, aviation, turf, recreation, construction and transportation.

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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