Our Driving Habits Should Not Be Keeping Oil Prices Low

This summer Americans drove less than last year. This was to be expected with local and state governments continuing to restrict activity based on the coronavirus, with the continued fear gripping large parts of the country and with the high current unemployment rate. However, the decrease in driving alone does not have enough of an impact on overall crude oil demand to indicate it should be an overwhelming reason for our current low oil prices. There is more going on, including a struggling global economy, the destruction of the jet travel industry and the apprehension of speculators. 

We can get a sense of how much gasoline Americans use on a weekly basis by looking at the numbers provided by the U.S. Energy Information Administration (EIA) for gasoline supplied to gas stations nationwide. By comparing the numbers for the nine weeks of July and August (excluding the last week before Labor Day), we can see that, on average, 9.74% less gasoline was delivered to American stations this summer compared to last. (Note, the number are very slightly skewed because of Hurricane Laura, which caused disruptions at refineries around the Gulf Coast). 

In U.S. refineries, “19 to 20 gallons of motor gasoline” are produced, “from one 42-gallon barrel of crude oil.” If we look at the average drop in gasoline supply this summer, which was about 938,000 barrels of gasoline per week, we see that correlates to only about 281,000 barrels of crude oil per day. Before the coronavirus, U.S. demand was over 20 million barrels per day. In other words, the decline in gasoline supply this summer amounts to less than 2% of total demand last year. 

Domestic care travel is down, but it is not impacting overall crude oil demand all that much. Car travel continues to be used as an indicator of crude oil usage, but we must be careful not to rely on it too much. As we wait for crude oil demand to return to 2019 levels, there is no single indicator that will do the trick.