Goldman Stunned By Collapse In Gasoline Demand: "This Would Require A US Recession"

Tyler Durden's picture

While energy traders remain focused on weekly changes in crude supply and demand, manifesting in shifts in inventory of which today's API  data, which showed the second biggest inventory build in history, was a breathtaking example of how OPEC's "production cut" is clearly not working, a much more troubling datapoint was revealed by the Energy Information Administration last week when it reported implied gasoline demand.

To be sure, surging gasoline supply and inventories are hardly surprising or new: they remain a byproduct of the unprecedented global crude inventories leftover from two years of failed OPEC policy which resulted in a historic glut. Last January, overall crude runs were up 500,000 bpd as refiners shifted away from diesel and other products to gasoline to chase more attractive margins amid a mild winter and sluggish diesel demand. The move led to an overbuild of gasoline stocks that lingered into the summer, punishing margins when they should have been at their strongest. This January, crude runs are at historic levels, up by roughly 300,000 bpd over last year.

So yes, both gasoline stocks and supply remains at extremely high levels, but what set off alarm bells is not supply, but demand: the EIA last week reported that the 4-week average of gasoline supplied - or implied gasoline demand - in the United States was 8.2 million barrels per day, the lowest since February 2012. And, as Reuters adds, U.S. refiners are now facing the prospects of weakening gasoline demand for the first time in five years.


Unlike excess supply, which may have numerous factors, when it comes to a plunge in end product demand the implication can be
only one: the US consumer is very ill, especially when considering that gasoline use has grown every year since 2012, despite fears that demand has topped out amid the growth of fuel efficient cars, urbanization and a graying population.

Upon learning the data, the industry's immediate concern was about refiners and what it means for already sagging margins: U.S. gasoline demand is closely watched by traders since it accounts for roughly 10 percent of global consumption. U.S. refiners amassed large inventories that punished margins last year, but record gasoline demand and robust exports helped provided a firewall against further slippage. Now the industry faces the prospects of higher crude prices following global production cuts and fresh federal data that suggests their gasoline demand safety net may be eroding.

“It’s tough to base conclusions solely on the weekly data, which can be off significantly," said Mark Broadbent, a refinery analyst with Wood Mackenzie. "If the demand is low as it the data shows, then it’s a going to be real problem for refiners."

But it could be a far bigger problem in what it means for the broader economy.

* * *

Enter Goldman which cuts right to the point: "A 6% fall in US demand would require a US recession"

As Goldman analyst Damien Courvalin notes, "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."

Goldman then adds that "to achieve the 5.9% decline suggested by the weekly data, our model requires PCE to contract 6%, in other words, a recession."

So is the gasoline demand data accurate, and is a recession quietly gripping over the US, even as most other indicators are calmly flashing green?

Here Goldman refuses to believe the official data, instead reverting to its own model, which "adjusts" the data, to goalseek the decline to appear more manageable.

Given that the December PCE printed 2.8% growth, in line with its
performance throughout 2016, we find such a sudden collapse unlikely... our revised model for gasoline demand, which regresses year-on-year change in demand on analogous growth in PCE, pump prices, efficiency, number of public holidays and base effect, points to a 30 kb/d or 0.3% decline. Alternatively, given our economists' forecast for PCE to grow 2.6% in 1Q17, such a decline would require a yoy efficiency gain of almost 20% vs. the maximum historical gain of 8%. Finally, the potential reduction in demand on account of the Presidential Inauguration on 20 January is offset by one less weekend day vs. the same period in January 2016.

Goldman then calculates what it believes is the accurate collapse in implied gasoline demand, instead of the 460k b/d reported by the EIA:

Our analysis identifies weekly yield and exports as systematically deviating from their final values and such biases suggest that demand could be revised higher by 190 kb/d. The EIA's real-time export data still includes estimates and we see potential for the recent shifts in the Mexican gasoline market to exacerbate the overstatement of US exports by an additional 185 kb/d given (1) lower PEMEX refinery turnarounds, and seasonally lower demand exacerbated by the January 16% hike in prices. Adjusting for these lower exports points to US gasoline demand declining only 85 kb/d yoy in January, in line with our macro model.

Next, Goldman pulls the oldest trick in the book and suggests that it is not implied demand that is plunging, but supply that is soaring and is simply not being captured by the government:

we view the larger than seasonal ytd builds in US gasoline stocks as driven by transient supply factors rather than persistent demand issues. In the case of Mexico, we expect that at current set prices, gasoline demand will decline by 25 kb/d yoy in 2017, with demand falling by 75 kb/d if prices gradually reached global prices this year.

In conclusion, Goldman chooses to ignore the data, and to base its conclusion on its own fudged data:

Looking forward, we reiterate our outlook for strong global demand growth in 2017 and view the recent US gasoline builds as reflective of transient regional shifts in gasoline supply instead. Given our outlook for strong consumer spending in 2017, we believe that US gasoline demand growth will remain resilient this year at 60 kb/d, albeit below last year's 150 kb/d growth because of higher prices.  From a global perspective, these declines remain modest, especially compared to the 510 kb/d 2016 demand growth from the 40 countries we track.

So is Goldman right implying the EIA gasoline demand data is wrong, or is Goldman once again incorrect - as it has so frequently been over the past year - which would mean that, as the bank itself admits, the US consumer, and economy, are in the throes of a deep recession? We hope to get a partial answer tomorrow, when the DOE reports the latest weekly inventory data.

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illuminatus's picture

This can only mean one thing! Bullish!!

Davy Crockett's picture

It's funny when they blame the weather, but in this case, I'm going to blame the weather.  It's been a pretty rough winter.  I think that must be having an effect on how much people drive.  I think there's nothing more than that.

38BWD22's picture



A recession is due about now, perhaps overdue by historical standards.  Note that Trump has pwerful enemies...

Gold, BTC and CA$H will help hedge.



I hope the Gold Balls Sacks lickers ar so fucking deep into the asshole of long market calls on oil all we will be able to see is the soles of their shoes while they choke for air.

D Nyle's picture

 Toliet Paper, better than gold when SHTF

tarabel's picture



I would think a pressure washer would be even better than TP.

Spigot's picture

Notice that the "holiday season" retail numbers from this past season were never reported on much? ... hmmm

Notice the ongoing and proportionally greater depth of the drop in gasoline demand STARTING in August 2016? A further drop is very consistent with the prior 5 months trending. ... hmmm

Notice the expansion of the US trade deficit to over $500 Billion in 2016, a year when the USD was overall relatively stronger and strengthening? ... hmmm

Notice the DOUBLING of the Federal government deficit from $500+ Billion to over $1 Trillion in 2016? ... hmmm

Notice the DOW has gone to over 20,000 at the same time that it takes $1000 per month to afford a median price home,having risen to the same figure as 2008, the year of the RE and bond explosions? ... hmmm

Notice that these figures are all within the context of an effective 16-18% real unemployment rate, and interest rates below 3%? ... hmmm

Notice that the Total Federal Debt to GDP ratio was in 2008 was 64% and is now 105%? ... hmmm

Notice that the Total US Debt to US GDP is currently 332% ? ... hmmm

Obadiah's picture

Damm Trumps 4 years too late to inflate the "Main Street Bubble"?  Gonna have to grab that BANKRUPCY Lever any day now.  Hang On BITCHEZ!!!

If usage goes up in Jan and Feb... we might have juuuuust a bit longer to stack

gatorengineer's picture

Consider that we may have a DOW 30K, and a depression on mainstreet, much worse than the 1930s......  They can and do put the market where they want it.

breaktwister's picture

The question is, will they ever admit to another recession?  Will it always and forever be GDP up, Wall St up, see told ya you could trust us, nothing to see here folks?  How long can the charade go on?  How can Trump unwind the falsification of the past 8 years of economic data? 

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Spigot Feb 7, 2017 10:18 PM

Where does that half a TRILLION dollars$$$ go (the trade deficit)? Where does that half a TRILLION $$$$ federal deficit go?

I would guess into the hands of central bankers, primarily. Do they not own most of the securities and bond markets at this point?

I would really like someone knowledgeable enough to answer those questions.

Arnold's picture

I have not been paying attention to US holdings, But the BOJ is a major shareholder in a lot of stuff.

Assume makes an ass out of you and me, but there is confidence that ECB bond holdings are substantial and the US, Via Federal Reserve "holdings" are similar.

roadhazard's picture

I used to be able to find answers to questions like yours when I first came to ZH but now it all haters.

Spigot's picture

Elco, to tell the truth I have no idea where the flows went. It seems to be, from these numbers, that things are wildly out of wack. We are not exporting enough. We are spending too much. In these "best of times" a huge number of people are either marginally employed or "not in the work force" when they should be. This shows how weak the economic engine is in the US. Artificially low interest rates over a long period of time are actually a very, very bad thing because the reversion to mean will destroy everything dependent on debt (which is just about everything). Total debt levels have actually dropped from 340+% to 332%, but the total debt figure is so grotesquely malign that one can only grab another double shot of whiskey to calm the nerves. A total debt to GDP ratio of 100% is considered "sustainable". And the roll over of debt has not been used to finance capital investment in private industry, but instead on RE, Student debt, M&A, Federal spending, etc = no real wealth creation to be used to advance prosperity.

It's a fucking ugly stew of sewerage in my book.

Watch Europe. Their "union" is starting to fall apart. I expect Wilder, Beppi and LePen to win and win big. Italian bonds and banking are most vulnerable. Derivatives will not be paid off, will be ruled "systemic risk", interest rates globally will spike 3-5%. Fugly, fugly crap is coming down the line.

Disclosure: Long a couple of box car loads of industrial strength toilet paper.

Arrow4Truth's picture

Hmmm... better get more toilet paper.

Wile-E-Coyote's picture

Yes, it feels like 2008 all over again, I'm getting the same vibes.


yogibear's picture

Super bullish!!!

Buy Stocks.


Giant Meteor's picture

You're right. Long toilet paper ...


WakeUpPeeeeeople's picture

5 gallon bucket of water and a sponge on a stick are better than TP or pressure washer

Arrow4Truth's picture

lol. 3000 psi could cause a little... discomfort.

Joyo Bliss's picture

Unless you're using a Karcher - they're shit.

The central planners's picture

Thats why i stack physical FED notes.

auricle's picture

 Toliet Paper, better than gold when SHTF


Silver, it has anti microbial properties. Scrape, rinse, repeat. 

Nemontel's picture

Not a recession, a Great Depression is due about now !

Escrava Isaura's picture

There are two America and one is in a bubble so, it will keep things going for a while….I mean, until it’s Great Again Ilusion.


38BWD22's picture



We'll have to see how it all turns out.

I think this will be the four most interesting years in US history.


Arrow4Truth's picture

Just don't think it will be that long before the house of cards comes tumbling down.

land_of_the_few's picture

Europe's the same, nobody drives anywhere anymore unless they absolutely have to. Parents' generation- they drove friggin' everywhere all the time!

GUS100CORRINA's picture


I hate to agree with you, but just take a look at debt versus GDP CAGRs. David Stockman made statement that CAGR for debt was almost 2 times that of GDP growth.

OBAMA administration has really put America in a very bad place. The entire country is in DENIAL. I believe TRUMP understands it very, very well. He warned about it during the campaign.

The GASOLINE DEMAND curves maybe a wake-up call.

America's level of debt may finally be taking its toll. OBAMA ADMINISTRATION DOUBLED AMERICA's DEBT BY 100% IN EIGHT YEARS.


TheRideNeverEnds's picture

Some say we are entering a recession, I say we are entering an era of post scarcity, a utopia of sorts. We have realized that debt is immaterial, an abstract construct, a relic of a bygone era when money was actually measured against barbarous relics such as gold. We have the technology to move past that and create wealth out of nothing now and so we are. No more recessions or depressions, only good times ahead. Not far off are the days when machines do all the labor, we can all receive credits just for existing and we can focus on the colonization of space. Just kick back and relax as the powers that be manage markets towards infinity, buy something if you enjoy free money, or don't. Either way the government has your back if you get sick or otherwise down on your luck, you will not live well like someone who owns productive assets but you will live.

CJgipper's picture

And OVER 2000 years ago, a Psalm was written that said a borrower is slave to the lender.


I know whose prediction I'm going with.

FreeNewEnergy's picture
“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”

John Maynard Keynes.

Psalms or Keynes, both partially correct. Wean yorself off absolutism.

Arrow4Truth's picture

And there's a pink unicorn under my bed.

Pollygotacracker's picture

It was a balmy 60° here in the Ohio Valley. Set a record. People are broke. Better to pay bills and eat out. Who wants to drive around, anyway?

Joe Sichs Pach's picture

Welcome to the real world of the average American fvkn Golden Sacktards.
Understandably it's hard to see how the peasants live when doing Gods work from up on high.

Kurt2's picture

All those cars bought on cheap credit! It's kind of hard to buy gas when your car just got repossessed.

In Ze No's picture

Leased vehicles have mileage caps.  No joyriding.  No long way home.

My owned vehicles have 200 and 100k for mileage.  Not looking to buy anytime soon.  We make a big deal about planning commutes and errands efficiently.

Farmerz's picture

Why drive when you can walk?

Kprime's picture

why walk when you can stay home and have deliveries

ghostofelvis's picture

Better to pay bills and cook your own food.  

1980XLS's picture

As the fleet turns over, the average new car gets 35% better MPG vs 2007.

That along with 15% ethanol blend, is all it takes.

Sometimes it is that simple.

Obadiah's picture

Don't waste your time with Ethanol... unless you want to boost the shit outta'er

spiral galaxy's picture

There's also the electric car pulling from the grid. ......not mention their super high mpg. Then there's the millions that don't have a job anymore to drive to. :-)

King Tut's picture
King Tut (not verified) Davy Crockett Feb 7, 2017 9:54 PM

Chicago had less snow in January than some towns in AL, TN and GA. Nat Gas will be down to $2 by April.

roadhazard's picture

I drive down the road a few miles and it's $1.99 in SC.

CJgipper's picture

It's been a static winter.  Frozen north and no cold in th such, there's been no emergencies and the snow clearing and all that goes along with and th running errands, etc.  I think the lack of activity explain's a simple 5% down.

SoDamnMad's picture

No, it means all the snowflakes living in mom and dad's cellar said, "He's not my president" and I won't go out again for 4 more years. I'll stay home and hold my breath until I turn blue.  No trips to rallys, no trip to the Apple store, no trips to Starbucks. 

Gilnut's picture

Weather?  I drive through an area of mostly light manufacturing, warehousing etc. on my way to work.  May be anecdotal but I'm seeing a lot of those guys walking to work lately, especially the past couple months.  In the rain and sleet.  Weather.......yeah, that's it.  Average Joe is running out of options, they've cut all the extra's and now their cutting the necessities.  All cuz of the f'n weather...yeah.