It may be time to start shorting oil again.
Memorial Day Weekend, which was closely watched by economists for signs of reopening "green shoots" and an acceleration in the US recovery, ended up being a huge dud. Because while beaches were mostly open and states across the country emerged from lockdowns, Bloomberg notes that demand for gasoline ended up falling over the Memorial Day holiday weekend, not only compared to a year prior but also to last week!
While gasoline consumption was expected to jump to reflect the "pent up" traveling, gasoline demand actually fell 1.34% from Thursday to Monday of the holiday weekend compared to the week prior, Patrick DeHaan, an analyst at GasBuddy, said in a tweet Tuesday. Worse, consumption on Monday fell 0.5% from the week prior, and was a whopping 25% to 35% lower compared with the long weekend a year earlier.
In short, if this is a sign of what to expect from gasoline consumption over the summer, it will be a very painful time for refiners and oil producers.
BREAKING: GasBuddy gasoline demand data shows Monday gasoline demand -0.5% from the Monday prior. Thur-Mon demand is now -1.34% from same period a week ago. #gasoline #oil #OOTT pic.twitter.com/P2z9LoYRRy— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 26, 2020
According to Andy Lipow, president of Lipow Oil Associates LLC in Houston, that may have been because people kept their driving local, when in previous years they had traveled farther. But whatever the reason for the tentative unofficial start to the summer, the lackluster start to what is typically considered the season for peak American fuel demand shows how vulnerable the oil market remains as the fallout from the coronavirus crisis haunts economies according to Bloomberg.
Meanwhile crude prices have surged 80% in May, after a historic collapse below zero in April, on supply cuts by major producers as well as optimism that consumption is recovering as lockdowns ease. That optimism may have been very much premature.
"The public stayed closer to home and consumed less gasoline because they were going to recreational venues nearby rather than traveling long distances around the country," Lipow said.
And while the demand may not be there, gasoline prices remain on the rise with the national average price rising for four consecutive weeks and gaining 5.5 cents over the last week to $1.96 a gallon, according to GasBuddy.
“Average gasoline prices across the U.S. continue to recover as more motorists take back to the roads as states relax previous shelter-in-place orders and begin filling their tanks, driving demand to continue rising,” DeHaan said in a report.
More motorists may be taking to the roads, but is "more" enough to offset the production surplus that remains in the system? For the answer keep an eye on oil prices, which may resume their slump unless there are far more concrete signs that demand is set to rise substantially from here.