EIA sees record U.S. summer gasoline use

Refiners in the U.S. are headed for a summer in which gasoline demand will hit an all time high for the season.

The Energy Information Administration last week predicted U.S. gasoline demand will average more than 8 million b/d this summer, or 2.1% above last year's level and the highest summer volume on record.

Pump prices, however, won't keep pace with consumption.

Vigorous demand will keep U.S. refiners busy and could generate net gasoline imports nearly double the 1995 summer rate.

Gasoline stocks, low by historical standards this year, will contribute somewhat less than usual to peak period supply this summer. But that won't create substantial supply problems, EIA said.

EIA cites these factors that portend this summer's increase in U.S. gasoline demand:

The effect of increased population on travel demand.
A steady gain in the amount of driving per driver.
An end to the era of constant increases in average highway fuel efficiency brought on, in part, by a steady decline in real (inflation adjusted) fuel costs during the last 14 years.

Gasoline prices

EIA's short-term outlook for second quarter 1996 says average retail gasoline prices this summer are likely to be similar to the 1995 average of about $1.24/gal.

The potential for greater volatility in the gasoline market this summer, due to demand growth and tighter supplies, increases the probability that gasoline prices may run somewhat higher than last year during the spring and early summer.

EIA said its "plausible" high price scenario yields peak summer prices near $1.35/gal, yielding a summer average price close to $1.31/gal. The more likely outlook, however, is for significant weakening in oil prices, as evidenced by suppliers' reluctance to hold more than minimal inventories at present.

Underlying EIA's forecast is a high degree of uncertainty about how high crude oil prices will climb, and when they will weaken this year.

Other highlights

Among other things, EIA's short term outlook predicts total U.S. net petroleum imports in 1996 and 1997 will exceed the record high set in 1977. Total net imports will equal 50% of total petroleum demand in 1997.

Imports thus will fill a widening gap between what the U.S. uses and what it produces. U.S. petroleum demand will increase by an average of about 370,000 b/d in 1996 and 1997, while domestic production falls by an average 210,000 b/d/year.

For natural gas, EIA said, after the spike in prices in February due to cold weather the prospect of warmer weather settled prices by the end of that month.

However, low volumes in storage and the need for high gas storage injections this spring and summer will keep 1996 wellhead prices at higher levels than seen in 1995.

The 1996 average wellhead price will be more than 45/Mcf higher than the 1995 price, due mainly to the first quarter year to year difference of nearly 75.

U.S. gas demand in 1996 and 1997 will reach its highest levels since 1973, EIA predicted.

Assumptions of normal temperatures, along with continued economic growth, will raise total demand 1.7% in 1996 to 21.9 tcf. Demand in 1997 will advance a further 2.7% to 22.5 tcf.

Electricity demand will continue to grow in 1996 and 1997 but at considerably slower rates than the 3% seen in 1995. This is due mainly to slower economic growth. In addition, an assumption of normal weather means this summer will be almost 9% cooler than in 1995.