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SPOTLIGHT

Opec ‘is winning battle to stimulate gasoline demand’

LONDON, September 25, 2015

Opec’s bid to curb production of high-cost oil is taking time to produce results but the organisation is already making good progress on its other objective of stimulating fuel demand.
 
In the first half of the year, gasoline deliveries into US local markets jumped by 4.3 per cent compared with the same period in 2014, according to the US Energy Information Administration.
 
The United States is the world's largest gasoline consumer and its gasoline demand accounts for 10 per cent of all crude and condensates produced worldwide.
 
In the first six months of 2015, US gasoline consumption rose at the fastest rate since 1985 - another occasion on which the real price of oil halved over 12 months and stimulated demand.
 
US gasoline sales have fallen or stagnated for the last decade as the high cost of fuel encouraged motorists to use their cars less and buy smaller and more fuel efficient vehicles.
 
But the sharp drop in fuel prices since the middle of last year is stimulating demand again by encouraging more driving and motorists to purchase much bigger and heavier vehicles.
 
According to the Federal Highway Administration, the volume of traffic on US roads in the first half, measured in vehicle-miles travelled, was up 3.5 per cent compared with 2014.
 
Rising economic output, employment, wages and incomes are all helping spur increased driving as more drivers make the daily commute.
 
But traffic volumes are increasing faster than most measures of economic activity, incomes and employment, so it seems likely cheaper fuel prices are also encouraging motorists to use their cars more.
 
Cheaper fuel is also encouraging motorists to start buying larger vehicles. Car sales were down nearly three per cent in January-August compared with 2014, but light truck sales surged 10 per cent, according to Wards Auto.
 
In the first eight months of 2014, the ratio of car/truck sales split roughly 48/52, but in the same period of 2015 the ratio split 45/55.
 
Truck sales as a percentage of total light duty vehicle sales are running at the highest share on record, according to the US Environmental Protection Agency, as low fuel prices make trucks more attractive.
 
Prodded by federal fuel efficiency standards, both cars and trucks are using less fuel than before, but the shift towards bigger vehicles is helping stimulate more consumption.
 
Opec's decision to maintain output and allow prices to fall is having a double impact on demand: traffic is growing faster than the economy, and fuel sales are growing faster than traffic.
 
US gasoline sales in the first half of this year were running 350,000 barrels per day (bpd) ahead of the first half of 2014, enough to make a small but significant dent in global oversupply.
 
And the pick-up in motoring is not confined to the United States. The volume of traffic on Britain's roads is growing at the fastest rate since 2002, according to the UK Department for Transport.
 
The critical question for Opec and the oil market is whether fuel demand will continue growing at this pace in 2016.
 
The trend towards more light truck sales should keep boosting fuel demand, at least compared with the previous trend, provided gasoline prices remain low.
 
Continued economic expansion, employment growth and income gains should also be positive for fuel sales in the United States and Europe.
 
With demand increasing and non-Opec crude oil supplies forecast to decline in 2016 the oil market is gradually moving back towards balance. - Reuters



Tags: Opec | gasoline | demand |

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