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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FreeNewEnergy's picture

Hey, Douchie Crockett, I got news for ya: this has been an extremely mild winter in most of upstate NY and Pennsylvania and the East Coast. I'm currently about 15 miles south of Lake Ontario and there's no snow on the ground. It rained yesterday and highs were in the mid-40s.

Just ike Goldman predicting robust demand in 2017, you are FOS.

Can nobody see the effects of technology on the entire energy complex? And what happens to oil when Pres. Trump reverses all the BS decision on coal made by Obummer?

GTFO of the typcial mindset that posits higher oil prices are good for the economy. It's rubbish. The world runs on oil, and nat. gas, and propane, solar, wind, hydro and alternative fuels. Besides, in the Northern Hemisphere summer, besides the air conditioning freaks, lots of people use LESS energy. These oil hawks need to find another area of exploitation. The oil doom and gloom is very much overdone. WTI crude should be in the $35-40/barrel range, not $48-50.

Fuck peak oil and all the other "fake news" that's been promulgated by vested interests. Peak oil is as much a lie as climate change, global warming, and Obama's nationality.

Stuck on Zero's picture

I can explain it, my friend stopped operating his 1985 F350 460 cu in pickup. 

The central planners's picture

Trump got to be real sad for goldman sachs losing money.

Lets Buy The Dip's picture

yes just last week, they would talk about BITCOIN crash....now we are back up near highs. 

i love when they say SELL, they buy, and when they say BUY, they are selling. 

this in other news about bitcoin is SHOCKING ==> 

Bitcoin surges on report indicating more and more people are using it to sneak money out of China - Click here to read. 

 

Dancing Disraeli's picture

Maybe this merely reflects the shitloads o' Mexicans and other third-worlders who have spleet for the border since Trump won the White House.  Fewer people on American roads.

myne's picture

Oh Whaa. It dropped off to the exact same demand as 2 years ago. 

 

Big deal.

 

Needs confirmation to prove a trend.

Bay Area Guy's picture

For Christ sake, we've never been OUT of the Great Recession in about 90% of the country!

venturen's picture

it is all bullshit....they have tried to export to pretend their is demand..... It is one big farce! 

Joe Sixpack's picture

...lectric cars and diesel.

blown income's picture

Just paid 1.93 in Lafayette LA



milking institute's picture

Just payed 3.15 in San Diego CA because,you know,we're special here and we care about the Earth and the Eisbears and Puppies too!

Arrow4Truth's picture

lol. And Kahlifornya is not of this earth.

Kprime's picture

california public employees need that money for hookers and blow

NoWayJose's picture

I am seeing hotels up $20+ a night, airfares up $150+ (to anywhere you want to go), rental cars up $100+ a week, casual restaurant prices up 10+ percent, fast food up 10+ percent, groceries and household supplies up 10+ percent, and gasoline up 60 cents a gallon --- and you want me to drive MOAR? To where exactly?

This Might Hurt's picture

Not seeing much here.  Looks like a normal winter with normal reduced demand.  Sure we dipped further than last year, but it did the same thing in 2012-2013 and returned to growth the following year.  

 

Farqued Up's picture

Recession? Who cares, stocks, bonds, real estate, hookers, blow, it all is going up, up, up. It will never retract I dont care what the doomers are saying. I don't care if the Snowdyke's uterus falls out and she never QE's ever again, "to the moon, Alice, to the moon". Fundamentals are irrelevant. 

jmack's picture

hookers go down, not up.

Latitude25's picture

Look at the chart.  Every year demand is at a low point right around this time of year.

milking institute's picture

Agree,on top of that cars get incredible MPG these days. just had a rental,full size sedan,avaraged 31 MPG. will never go back to driving guzzlers but that's just me...

King Tut's picture

I told my wife to get any car(up to $30K)she wanted last fall and she test drove about 20 cars- she decided on a 2017 Prius -she is getting 51 mph in it- costs about $10 a week in gas.

Midas's picture

I heard they were slow, but Damn!

ajkreider's picture

“It’s tough to base conclusions solely on the weekly data, which can be off significantly," - a quote from the article.  I'm taking bets that last week's data is not signalling a recession - given just about every other data point.

 

Any takers?

Westcoastliberal's picture

We're in a recession. Duh! Since 2008. Probably Q3 2007.

Automatic Choke's picture

I blame Amazon.  Nobody is shopping anymore.  Everybody sits at home on their fat asses and orders everything from dildos to selfie-sticks to groceries online, and has them delivered by drone.

 

1980XLS's picture

Netflix & Dominos.

 

Check out those charts 

mathew913's picture

people are tapped out from spending on Christmas and superbowl. Cutting back this time of year. Cycles. Economy will rock with Trump. Look at Baltic Dry Index. Yes retailers like Macy's and others will close stores and lay off...but the jobs are SHIFTING. lOOK ALSO AT dAILYjOBcUTS.COM. shadowstats.com . Econ good. 

dark fiber's picture

I thought is was all those Teslas. \sarc

Bunga Bunga's picture

When you can put on a fire with a Tesla, who needs gasoline?

ebworthen's picture

Demand lower even when it is 1/2 price from the FED/Treasury reflated bubble highs!?!?

Imagine that!  Couldn't have anything to do with the real cost of living and the death of the Middle Class now, eh!?

Falconsixone's picture

You've said enough GS. Go fuck your money.

Faeriedust's picture

And maybe it's just the weather.  Ye gods, folks, we're in the middle of FOUR DAYS IN A ROW of temperatures topping 70 degrees -- IN FEBRUARY -- in Northern Virginia.  That's got to involve a serious slump in demand for heating oil and equivalents.

DemandSider's picture

We're at 4 degrees in Minnesota, calm down. Then, again, I think heating oil is more of an Eastern U.S. thing. We use a lot of natural gas and coal for electricity.

Cassandra.Hermes's picture

BUY ELECTRIC CAR, JUST TEST ONE,

SO MUCH BETTER, i do keep my BMW but it will be my last combustion car, my nissan leaf is the best commuter car i ever had,

my comute of 20 miles each day cost me just 65c

 

Oldwood's picture

It would need a "sound of power by Mattel" app to work for me.

Bunga Bunga's picture

Good, the less idiots in the wilderness the better.

overmedicatedundersexed's picture

cassy can you tell us??

what noise does the leftist make when the electric leaf ends up under the mack trucks tires??

DemandSider's picture

Japan is such a racist, misogynist country, yet American women just love to give them money. Very odd. Reminds me of the government union workers driving non union foreign brand/domestic built cars. I think Wisconsin is just the tip of the ice berg for government unions.

DemandSider's picture

OK, now, add the purchase price and get back to us. I think my 2.5 year old, $2,000.00, UAW made, Plymouth Sundance has you beat pretty badly in the economy department, unless you drive your car for 20 years with no maintenance costs.

DaBard51's picture

Demand ALWAYS dips on Super Bowl Weekend.

That's why babies get born in October.

 

 

 

When nine hundred years old you become, look this good you will not.

TXsodbuster's picture

Hunting season is over, no traveling back and forth to the Ranch. JAN & FEB home with the family.

Oldwood's picture

The END is nearer than everer before.

Prepare, and then relax, have a cold beer and maybe....A nap.

Circlehook's picture

We're doomed, we'll never make it.

jmack's picture

 obviously Tesla is having an effect on gas usage..

 

 

BAAAAHAHAHAHAHAHAHAHAH,  sometimes I crack myself up.

Lizardking's picture

This is just a media blitz flush before new trading range is established for oil. 27-50 was old trading range, new 2017 range will be 50-70. So probably another 3 dollars to the downside and then up in anticipation of summer driving season. Start a small position now and continue to buy more upon further weakness.

We all know inventory levels are high and that it would take a while for cuts to take place. This news should come as no surprise to anyone. Watch the MSM jump all over the negative oil outlook to flush out weak players even though this is old news.

venturen's picture

supply and demand are irrelavant when you manipulate the prices at will with an unlimited amount of free money. Oil should be below $25! Look at the profit numbers at BP, SHell, Exxon...etc

Lizardking's picture

I was never referring to supply demand, I'm just pointing out where OPEC wants the price of oil to go. New trading range will be 50-70. The summer driving increase will be the excuse to prop up price of oil. There are so many stubborn people on ZH. There's a big difference between what's suppose to happen and what will happen. This site is filled with what's suppose to happen thinkers. What was suppose to happen in 2008/2009 when banks were basically insolvent, a collapse of the financial system. What did happen, fed induced support to prop up the market. So don't give me the facts about what's suppose to happen otherswise you missed out on the last 8 years of stock gains/real estate gains, etc, etc. Even if the market drops 40% those what will happen thinkers are still doing better than the what's suppose to happen thinkers.

Xena fobe's picture

I'm with you. This is a standard GS tactic.  Shake retail out of our positions.