U.S. traffic volumes are levelling off in a sign the previous stimulus from cheap gasoline prices is fading as pump prices rise.
The volume of traffic on U.S. roads was down by almost 0.6 percent in April compared with the same month a year earlier, after seasonal adjustments, according to statistics released on Monday.
Traffic volumes declined year-on-year for the first time since the first quarter of 2014, according to the Federal Highway Administration
(“Traffic volume trends”, FHWA, July 2018).
Volumes in any one month can be distorted by the timing of public holidays, the distribution of working days and weekends, and unusual weather patterns.
But the rate of growth in traffic volumes has been slowing consistently since early 2016, coinciding with the rise in gasoline prices, after accelerating during 2014/15, coinciding with the previous oil price slump.
Traffic volume growth has been correlated with the rise and fall in retail gasoline prices over at least the past 25 years, among other factors (https://tmsnrt.rs/2tS9i6S).
Cheap gasoline provided a significant stimulus to driving during the latter part of 2014 and throughout 2015 but the impact has faded as average pump prices have climbed back towards $3 per gallon.
The slowdown in traffic volume growth is consistent with separate data showing a levelling off in the quantity of gasoline consumed in 2017/18 after rapid growth in 2015/16.
The quantity of gasoline supplied to domestic consumers during the first four months of 2018 rose by just 4 million barrels or 0.4 percent compared with the same month a year earlier(“Petroleum Supply Monthly”, EIA, June 2018).
EIA forecasts U.S. gasoline consumption will grow by just 20,000 barrels per day (bpd) in 2018 and 40,000 bpd in 2019, after rising by just 2,000 bpd in 2017 but 139,000 bpd in 2016 and 257,000 bpd in 2015.
By contrast, U.S. distillate consumption is predicted to rise by 130,000 bpd in 2018 and another 60,000 bpd in 2019 (“Short-Term Energy Outlook”, EIA, June 2018).
Besides the impact on miles driven, oil prices influence gasoline consumption through motorists' choices about new vehicles purchased and the retirement of older vehicles from the fleet.
During the price slump, consumers switched to purchasing larger vehicles with lower fuel economy, reversing the earlier trend towards smaller cars and more efficient engines, in the process boosting gasoline consumption.
Now prices are climbing, fuel economy is set to become more important for vehicle buyers again, and there is likely to be a shift back towards smaller, more fuel-efficient engines, restraining further consumption growth.
Over the last seven decades, there has been a clear link between oil prices and fuel consumption growth rates, which has been confirmed during the most recent oil-price cycle.
Oil consumption is normally led by gasoline during the first phase of each cyclical upswing until distillates become the primary driver in the second phase.
During the first phase of the current cyclical recovery, the rise in oil consumption
was led by gasoline consumption by private motorists, but that impact is now fading as gasoline prices climb.
Further consumption growth increasingly relies on the distillate fuels used in freight transport, as well as the industrial sector and on oil and gas drilling sites.
Notwithstanding strong demand for distillates, rising oil prices are already starting to restrict overall consumption growth, principally through their impact on gasoline sales.
As a result, EIA forecasts U.S. petroleum consumption will increase by just 53,000 bpd in 2018 and 26,000 bpd in 2019 after rising by 190,000 bpd in 2017, 153,000 bpd in 2016 and 434,000 bpd in 2015.
Rising oil prices are already helping to restrain consumption growth and rebalance the oil market and any further escalation will accelerate the effect.
By John Kemp