In the latest sign yet that the global vaccination effort was falling way short of expectations, institutional traders are shunning gasoline futures in favor of other contracts. Forecasts that gasoline demand may be close to peaking are not helping either.
Reuters' John Kemp wrote in his weekly column on hedge fund oil contract buying that funds sold the equivalent of 19 million barrels of oil in gasoline futures. This, Kemp noted, was the fastest rate of selling since March last year.
Any comparison to March last year should be worrying, but it is especially worrying when it's about gasoline. The pandemic was expected to—and in some parts of the world, did—motivate greater use of personal transportation at the expense of alternatives. That use would lead to a rebound in gasoline demand. This did happen in India, but it is not happening, at least not fast enough, in Europe and the United States.
Continued movement restrictions are certainly one reason for this trend. Another may be the Energy Information Administration's recent Annual Energy Outlook, which suggested gasoline demand is two years away from its peak. Gasoline will continue to rule the transportation sector, the EIA said, but fuel efficiency gains will offset any increase in consumption as traveling recovers from the pandemic, and peak demand could come as soon as 2022.
Right now, U.S. gasoline demand is at the lowest for this time of the year in at least a century, at 7.8 million bpd, according to Bloomberg. That's the four-week average for the fuel that clearly shows the pandemic's continuing effect on fuel demand. Even with a vaccination rate of more than a million people daily, the return to normal will take a while, and so will gasoline demand recovery. Related: The Oil Deal That Could Break Up Iraq
This is exactly what fund behavior on the oil futures market is reflecting, too. On the face of it, vaccine rollout has been slower than it should have been. Yet, one might argue that governments, especially in Europe, had unrealistic plans for the vaccination of their population. These plans are now coming back to bite, delaying the return to normal that would involve growth in gasoline demand.
All of this is bad news for refiners who have been waiting for demand to recover more strongly and consistently for months. Now, Argus reports, refiners in the United States are hopeful that an accelerated rate of vaccinations will spur a rebound in gasoline demand as soon as the second half of the year.
"If we can really get the government functioning appropriately on the distribution, I think we are going to be in much better shape — perhaps quicker than we all realise," Argus quoted the chief executive of Valero, Joe Gorder, as saying.
Prices at the pump, meanwhile, are rising on vaccine-related hopes. This is justified, but these hopes may turn out to be greater than what can be realistically done about gasoline demand. Some businesses are already preparing for a permanent change in consumer behavior due to the pandemic, and this change may very well involve more permanent remote work, meaning less commuting, meaning less demand for oil—and fuels—even after vaccinations reach the level of herd immunity.
By the way, achieving herd immunity against the coronavirus remains a hope as well. With new variants of the coronavirus that caused the pandemic to emerge and spread faster than the original, some medical experts are warning about the possibility of yet another resurgence in cases, despite the vaccinations. That would weigh on demand again and reinforce the shift to new consumer—and business—behaviors that could make the change permanent.
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By Irina Slav for Oilprice.com
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