California Drivers Send Warning to OPEC: Kemp

California's road traffic in 2014/2015 grew at the fastest two-year rate since 2001/2002, according to the state's Department of Transportation.

OPEC is relying on continued strong growth in driving and fuel demand from the United States and other countries to help rebalance the oil market in 2016 and 2017.

But continued strong growth in fuel demand is by no means assured, as the U.S. industrial economy struggles, global trade remains sluggish and economic growth in emerging markets slows.

California traffic volumes increased more than 2.6 percent in both 2014 and 2015, based on estimates prepared from automated roadside traffic counts at 20 locations across the state (http://tmsnrt.rs/1PkN9TD).

Strong employment growth, income gains and a big drop in fuel prices combined to boost driving in the state.

Much of the increase seems to have been concentrated in passenger cars, sport utility vehicles, and crossover utility vehicles, which use gasoline, rather than heavy trucks, which use diesel.

In volume terms, state gasoline sales were up almost 3 percent in the first 10 months of 2015 while diesel sales grew by only 1 percent, according to tax records published by the state Board of Equalization.

California is the largest gasoline market in the country, and the second-largest diesel market after Texas, so it can be a key indicator for national developments.

The state data is in line with broader national driving and fuel trends reported recently by the Federal Highway Administration, the Energy Information Administration and the U.S. Bureau of Transportation Statistics.

National and state-level data all points to strong growth in passenger transport and gasoline consumption, linked to cheap fuel prices and the buoyancy of the consumer economy.

But there has been little or no growth in freight volumes and diesel consumption, which is more influenced by the struggling manufacturing sector.

The critical question for the Organization of the Petroleum Exporting Countries and the rest of the oil market is whether the overall growth in U.S. traffic volumes and fuel consumption will be sustained in 2016 or moderate.

Freight seems unlikely to increase much, at least in the first half of 2016, because manufacturers, distributors and retailers are still trying to reverse the unwanted build-up in inventories all along the supply chain.

But passenger driving and gasoline consumption could also grow more modestly in 2016 as the impact of the big drop in fuel prices in 2014/2015 tapers off.

In California, the fastest increase in driving and gasoline consumption was concentrated in the first half of 2015 and had already begun to fade in the second half (http://tmsnrt.rs/1PkNlCv).

California traffic volumes were up 3.5 percent in the first quarter of 2015, but year-on-year growth declined to 2.8 percent in the second quarter, 2.2 percent in the third, and 2.1 percent in the fourth.

For the country as a whole, the Energy Information Administration forecasts liquid fuels consumption will rise by 160,000 barrels per day in 2016, down from an estimated 270,000 bpd in 2015.

U.S. gasoline consumption is predicted to rise by just 70,000 bpd in 2016, down from 240,000 bpd in 2015 ("Short-Term Energy Outlook", EIA, January 2016).

If U.S. fuel consumption grows more slowly in 2016, it will make rebalancing the oil market that much harder and longer.

By John Kemp