Demand Destruction Continues to Ease

Volume declines weaken as states reopen and retail averages rise
Photograph: Shutterstock

ST. PETERSBURG, Fla. — The demand destruction from the COVID-19 pandemic appears to be easing, based on the latest volume figures.

In a May 6 research brief, Raymond James cited data from Oil Price Information Service (OPIS) showing a 38% decline in national fuel volumes for the week ending May 2. This is a smaller decline than the week ending April 25, which had a 45% year-over-year decrease in volumes, and the week ending April 18, which was off 47%. OPIS bases volume figures on its survey of 15,000 fueling sites across the United States; the most recent survey had about 50% of sites reporting.

The April fuel volume data beat its expectations of a 60% decline year over year, Raymond James analysts said.

“Admittedly, a 38% [year-over-year] decline is still unprecedented compared to historical standards, and the question still remains how fast volumes recover once the ‘stay at home’ orders are lifted,” the research brief said. “Nonetheless, with more states beginning to reopen, we believe volume trends will continue to modestly improve on a [week over week] basis.”

Raymond James, St. Petersburg, Fla., which covers public convenience-store chains such as Murphy USA, Casey’s General Stores and Alimentation Couche-Tard, estimated that volumes will continue to decline on a year-over-year basis but improve sequentially in May, June and July. It considered the Southwest and Southeast as “the best performing regions” in terms of average volumes.

It cited the most recent earnings reports from companies such as Marathon Petroleum, which observed a bottoming of gas demand in late March and early April but a steady 5% to 15% improvement since mid-April. And Phillips 66 announced that volume declines reached 40% to 50% year over year but have since eased to about a 35% decline.

Valero observed in its April 29 earnings call for first-quarter 2020 that demand had risen to about 64% of normal, compared to 55% in the first two weeks of the month.

Valero Chairman and CEO Joseph Gorder said that in the San Antonio market, where the company is based, it has seen a 14% increase in traffic over the past couple of weeks.

“There probably is a pent-up demand for folks to get out of their houses and get mobile and to shop again and to go to restaurants again,” Gorder said. “So I do think we're going to see more activity, and not only here but much more broadly, particularly through the South.”

The company expected demand increases to be gradual, said Gary Simmons, chief commercial officer for Valero, as people continue to work from home, “but then you're going to have people driving more and probably using mass transit less, going forward. It's just because the social distancing is hard when you're on mass transit.”

Margin Trend

The blow from these large year-over-year declines in fuel volumes has been softened by healthy retail fuel margins, which have widened with the fall-off in oil prices.

“So far, the [year-over-year] fuel margin gains are fully offsetting the fall off in miles driven from COVID-19 and are running above our current published estimates,” Raymond James analysts said. “Specifically, April national regular unleaded gasoline margins were up [about] 294% vs. April 2019.”

The Midwest showed the largest year-over-year margin increases, followed by the Southeast; however, this trend is also easing. On a week-over-week basis, margins have started to decline, analysts said.

In light of weak volume trends, Raymond James expects margins to remain strong year over year in May and June, “as without normalized volumes there is not as much incentive for operators to ‘promote’ margins away to steal market share,” the note said.

The national average retail price has risen for two weeks in a row, according to GasBuddy. Over the past week, it increased 8.2 cents per gallon (CPG) to $1.84 on May 11. Data from transactions made with the company’s Pay With GasBuddy payments card shows a 5% week-on-week increase in gasoline demand.

The Great Lakes states, which saw the lowest retail prices during the pandemic, showed the biggest increases in their averages, according to GasBuddy. This includes Michigan, where the state average rose 32 CPG; Ohio, up 26 CPG; Indiana, up 25 CPG; and Illinois, up 23 CPG. The most common gasoline price in the United States is $1.89 per gallon, which is up 30 CPG from a week ago, according to GasBuddy.

“For now, the continued recovery in gas prices will nearly completely depend on improvement in the coronavirus situation, as so long as refineries boost production again as demand continues to rise again,” said Patrick DeHaan, head of petroleum analysis for Boston-based GasBuddy.

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