MINNEAPOLIS — Convenience stores sell 80 percent of the fuel purchased in the United States, so what happens at the pump is top of mind for operators in the channel. After a year of uncertainty at the forecourt, indicators are beginning to point in the right direction.
"Where is demand? It is moving up and that's good news. Gasoline demand is strengthening," Brian Milne, DTN energy editor and analyst, said during the company's recent "Size Up Summer Season Gasoline Demand" webinar.
In fact, the U.S. Energy Information Administration (EIA) reported that gasoline demand moved above 9 million barrels per day in mid-April for the first time since August and for only the second time since the pandemic-induced lockdowns that occurred in March 2020, according to Milne.
"This trend is bolstered by the end of some business restrictions and progress in vaccines. We have improving market sentiment," he noted, adding that the Easter holiday in early April helped drive demand as well.
Comparatively, the Federal Highway Administration had reported that during January and February, vehicle miles driven were down nearly 12 percent vs. the same two months in 2020, Milne cited.
Looking at traditional economic drivers, employment is key to understanding gasoline demand. Citing U.S. Labor Department statistics, Milne noted that unemployment claims are trending downward. The department's numbers showed that the national employment rate was 6 percent in March, compared to 14.8 percent in April 2020.
"That's a pretty big decline and certainly great progress," he said.
However, the employment picture does continue to show some weakness. There were 9.71 million unemployed in March 2021 vs. 5.71 million in February 2020.
"The reality is that while what we see in employment is certainly historic and the growth in new jobs is wonderful, we took an enormous hit last year — which is also a historical event — and the growth in gasoline demand is going to be limited going forward until more people find work," Milne explained.
Of those employed, 21 percent of individuals worked remotely in March 2021, down from 22.7 percent in February.
"The big question going forward is: How durable is remote work?" he posed, adding that this is a major consideration for gasoline retailers.
Another economic driver is discretionary spending, which "exploded higher" in March, Milne said. "With the unemployment situation, this shouldn’t be happening; we shouldn't be seeing such strong discretionary spending," he said.
But there has been "extraordinary spending" by the federal government over the past year, according to the analyst, including stimulus checks that were directly deposited into the bank accounts of millions of Americans. That blurs the picture, he said.
The rise in discretionary spend is expected to continue as the number of vaccinations rise and more consumers feel comfortable dining out.
Summer 2021 Forecast
According to EIA, this year's summer gasoline demand is expected to hit 8.8 million barrels per day, up 13.2 percent from 7.8 million barrels per day in the summer of 2020. Still, that forecasted number is down 7 percent compared to the summer of 2019, Milne pointed out.
This summer's gasoline demand is expected to peak in August at 9.1 million barrels per day. By comparison, demand in August 2019 was 9.9 million barrels per day and demand in August 2020 was 8.5 million barrels per day.
In addition, EIA forecasts that the regular-grade gasoline retail price will average $2.78 per gallon this summer, compared to $2.07 per gallon last summer.
Minneapolis-based DTN provides analysis and information on weather, agricultural, energy, and the commodity market.