CA Gasoline Sales Push Oil Demand

Motorists in California purchased more gasoline in October 2014 than any corresponding month since 2007, according to state tax records, confirming the renewed growth in U.S. fuel demand.

State gasoline consumption was 2.3 percent higher than in the same month in 2013 and 4.1 percent higher than in 2012, according to the California Board of Equalization, which collects motor vehicle fuel tax in the state.

Sales have been growing since June 2013 and the trend is expected to accelerate as motorists respond to the halving of fuel prices by purchasing larger vehicles and driving more.

Lower crude oil prices will gradually rebalance the market by slowing crude production growth and encouraging more use of refined fuels.

GASOLINE SALES UP

California's gasoline sales have been rising for more than a year but the rate of increase accelerated in September and October 2014, coinciding with the sharp drop in pump prices.

In October, California gasoline sales hit 1.272 billion gallons, up from 1.242 billion gallons in October 2013 (http://link.reuters.com/vav83w).

To switch units to something more familiar in the oil market, the extra 30 million gallons of gasoline sold in October 2014 was equivalent to an increase of 23,000 barrels per day (bpd).

Multiplying up to national level, gasoline sales were more than 200,000 bpd higher across the United States in October 2014 compared with the same month a year earlier.

If oil prices remain at their current level, and gasoline consumption continues to grow at recent rates, demand could easily rise by another 200,000 to 500,000 bpd in 2015.

Assuming national crude oil production is flat in 2015, increased gasoline consumption from the United States alone could tighten the global oil market by between a quarter and a half a million barrels per day by the end of 2015.

By itself that would not be enough to rebalance the oil market. But if U.S. diesel consumption also continues to rise, and increased fuel use is mirrored in Europe and China, thanks to lower prices, global oil consumption could easily rise by 1 million barrels per day by the end of the year.

The International Energy Agency, using a more sophisticated model, predicts global oil demand will hit 94.4 million bpd in the fourth quarter of 2015, up almost exactly 1 million bpd from 93.4 million in the fourth quarter of 2014.

FUEL CONSUMPTION DATA

The problem with monitoring the oil market is the paucity of real-time data on either supply or demand. Data is mostly incomplete and available only with long delays. Consumption statistics are particularly poor in terms of both accuracy and timeliness.

As usual, the best data comes from the United States, where the Energy Information Administration (EIA) publishes weekly, monthly and annual estimates on the amount of "petroleum products supplied" to the domestic market.

But product supplied is calculated as a residual from other data on domestic production, imports, exports and stock changes, so it is sensitive to errors in recording or estimating the other items.

In particular, exports are estimated in the short term, so errors in estimating exports flow through directly into equal and opposite errors in calculating product supplied.

The one point at which accurate and comprehensive data is available is when motor fuel is sold and excise taxes are paid.

Federal and state governments impose excise taxes on every gallon of gasoline and diesel sold, and publish data on "taxable sales".

For example, California collects federal fuel tax of 18.4 cents on every gallon of gasoline sold as well as a state fuel tax of 36 cents per gallon.

States report taxable sales to the Federal Highway Administration each month so the U.S. Department of Transportation can attribute revenues and distribute spending from the highway trust fund among the states.

Unfortunately, the latest nationwide data relates to August 2014. Five months out of date, it is much too old to be useful in analysing short-term consumption trends.

But some states release their own data on taxable sales much faster. California fuel sales data is available for October, only three months old.

The state's motor vehicle fuel tax is levied on gasoline upon distribution, importation or sale in the state, and there are fewer than 300 registered tax-paying entities, so the statistics are simple, comprehensive and clean.

California motor vehicle fuel tax raised $5.2 billion for the State Transportation Fund in the 2012-13 fiscal year to construct and maintain public roads and mass transit systems.

California is the largest motor fuel market in the country, ahead of Texas, Florida, New York and Illinois. The state accounted for 11 percent of nationwide
 

By John Kemp