According to a Reuters analysis of U.S. Energy Information Administration (EIA) data, U.S. gasoline consumption is on track to hit record levels in 2016, surpassing the previous record set in 2007. The surge in demand could in turn drive up the price at the pump, and perhaps have an effect on crude oil prices.
The EIA does not currently forecast record demand for 2016, but revisions to its estimates show a marked upward trend. In 2015, Americans consumed 9.16 million barrels per day (bpd) of gasoline, compared with a record 9.29 million bpd in 2007. In December, the EIA forecast that 2016 demand would increase by 10,000 bpd compared with 2015. In January, they revised that estimate to 70,000 bpd, followed by another revision to 90,000 bpd in March. If demand increases by 125,000 bpd, it will match the previous record.
The pinch is already showing up in the price of gasoline futures contracts for April delivery, which have risen by 15.7% since the end of 2015.
Gas prices at the pump, as reported on a weekly basis by the EIA, are level compared with the end of last year, having dropped through January before turning around in mid-February. Increased demand could see them continue to rise.
Reuters also reports rising demand for crude oil in India and China, along with hedge funds' increasingly bullish sentiment on oil. These factors could lead to still higher gasoline prices (crude oil accounts for 38% of the price of gasoline at the pump, according to the EIA). On the other hand, overcapacity continues to exert downward pressure on the price of oil, as rival producers compete for market share. West Texas Intermediate crude currently trades at $39.59 per barrel, down 1.4% year-to-date.
The Bottom Line
U.S. gasoline consumption is nearing record levels, and based on previous revisions to EIA estimates of 2016 demand growth, this year might set a new record. High demand, combined with factors pushing up the price of crude oil, could see prices at the pump rise. Higher gasoline prices could have a number of implications, from the effect on household budgets to the boost inflation, which in turn increases the likelihood that the Fed will raise rates sooner rather than later.