From ZeroHedge, July 8:
Exactly six months ago, when oil bulls still held on to some fleeting hope that OPEC may somehow stabilize the crash in oil prices despite the shift in marginal oil production from low-cost OPEC producers to US shale (a hope which is now gone as the just disclosed letter from Andy Hall demonstrates), Goldman noticed something troubling: an unprecedented collapse in gasoline demand. As the firm's energy analyst Damien Courvalin said on February 8, when discussing the 6% fall in US gasoline demand, such a plunge "would require a US recession" and add that "implied demand data points to US gasoline demand in January declining 460 kb/d or 5.2% year-on-year. In the absence of a base effect, such a decline has only occurred in four periods since 1960 during which time PCE contracted."
Now, 6 months later, the situation is very much different: with the US now inside peak summer driving season, the cyclical drivers behind gasoline supply and demand are vastly different, and yet something has remained the same: gasoline demand in the US simply refuses to rebound, surprising analysts by how weak it is. So weak, in fact, that Bank of America has released a note which, like Goldman half a year ago, reveals confusion about why - if the economy is indeed strong - demand hasn't kept up and has prompted BofA's energy analyst Francisco Blanch to ask "where is the driving season?" and, more specifically, "is this year's driving season over before it began?"
Here's why some of the biggest banks continue to be amazed at the relentless failure of gasoline demand to validate an economic recovery, courtesy of BofA:
Gasoline demand is extremely price-elastic
In a U-turn from the last two years, when demand growth for gasoline was running at phenomenal speed, gasoline consumption in the Atlantic Basin has fallen by 1% on last year. In the US, lower demand growth seems largely a function of higher retail gasoline prices, underscoring how extremely price elastic oil demand is (Chart 1). Annual growth in miles driven has slowed to 1.5% from 3.4% in the same period last year. Higher prices are turning people back on to smaller and more fuel-efficient cars, reviving the well-established trend prior to 2015. Sales growth for SUVs, which averaged 7% YoY in 2016, has now slowed to 2%, allowing fuel efficiency gains in the US fleet to come through more forcefully (Chart 2). More recently, slowing employment growth, as well as a slowdown in construction activity, may have also played a marginal role....
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Which may explain the lament of Señor Silverback in July 1's "So Then I Proposed A Corporate Blog....":
...but that idea didn't go over with the investment policy committee.
Next thing I know, I'm in this joint lecturing on sticky prices and the elasticity of gasoline demand while....yo, blonde guy, you have any termites I could nosh?
Where was I....yeah, the blog....I figured the best way to get out of this gig was to do a personal blog, maybe go on the TED circuit, you know, get recognized as a thought leader....
Which may explain the lament of Señor Silverback in July 1's "So Then I Proposed A Corporate Blog....":
...but that idea didn't go over with the investment policy committee.
Next thing I know, I'm in this joint lecturing on sticky prices and the elasticity of gasoline demand while....yo, blonde guy, you have any termites I could nosh?
Where was I....yeah, the blog....I figured the best way to get out of this gig was to do a personal blog, maybe go on the TED circuit, you know, get recognized as a thought leader....
But that damn vlogger Zola in Dallas stepped on those dreams with the splishy-splashy dance, ten million views first day, sucked the air right out of the room and.....could I get a few more of those ants, the black kind not the fire ones, too spicy...where was I again?
Oh yeah, Zola...