THREAT: Gasoline commodity prices have surged over 20% in the past month, outpacing crude oil’s rebound. US pump prices are up a similar amount at an average of $3.76/gallon. OPEC supply cuts, resilient economic growth, and China economic stimulus hopes boosted oil. Whilst summer driving season demand and tight supply has boosted the gasoline price premium to twice its average (see chart). Alongside rising ag commodities this is a growing tail-risk to the ‘goldilocks’ consensus of falling inflation and a resilient consumer that has driven the recent stocks rally. Every 10c. increase in gas pump prices is a $25 billion annual cost to the consumer, equal to all Macy’s (M) sales. Whilst gas prices closely track consumer inflation expectations.
DRIVING SEASON: The three-month Memorial Day (May 29th) to Labour Day (Sept. 4th) US summer ‘driving season’ of peak demand is well underway. Gasoline pump prices are still down near 30% from their $5/gallon peak, boosting demand. Whilst US gasoline supplies are tight at equivalent to 24 days of demand, 6% below last year, and with Valero’s Memphis refinery only the latest unplanned outage. Flexibility is limited by the US’s chronic domestic refining shortfall and with its strategic petroleum reserve (SPR) already drained and now starting to be rebuilt.
CRACK SPREAD: This has taken gasoline’s ‘crack spread’ price premium to crude oil to a big 50% premium, which is over double its 35-year average. The gasoline outlook is helped by the resilient consumer demand outlook and with the Atlantic hurricane season still a disruption wild card with 40% US refining capacity along the exposed Gulf coast. But prices are vulnerable to the long-anticipated US economic slowdown and a normalization of the gasoline price spread.
All data, figures & charts are valid as of 02/08/2023.