Weak Economic Outlook Means Relief at the Pump

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Sluggish demand and concerns about an economic contraction in the U.S. are offsetting any issues with U.S. trade policy to leave retail gasoline prices in check.

Retail gasoline prices are moving lower, along with much of the commodities market. Travel club AAA put the national average at $3.08 for a gallon of regular unleaded gasoline on Friday, about 2.5% below month-ago levels.

Travel demand should be elevated, given the Spring Break period for many U.S. colleges and universities. But data from the Transportation Safety Administration show the number of people moving through security checkpoints over the seven-day period ending Thursday was about 3.5% below the same period last year.

Gasoline demand is elevated. The U.S. Energy Information Administration (EIA), the data arm of the U.S. Department of Energy, showed the total amount of refined petroleum products sent to the market, a proxy for demand, averaged 20.7 million barrels per day (BBL/d) over the four-week period ending March 7, a 3.9% increase over the same period last year.

Yet the overall outlook is deteriorating. In its latest GDPNow forecast, the Federal Reserve Bank of Atlanta pointed to a 2.5% economic contraction for the first quarter. Headline inflation increased modestly at 0.2% month-on-month to February and a 2.8% annual increase, though that was softer than anticipated.

It's not expected to last, however.

"Trade tensions in North America could impact growth in Mexico, Canada and, to a lesser extent, the United States," economists at the Organization of the Petroleum Exporting Countries (OPEC) wrote in their monthly report for March. "The highly integrated industrial sector will face major challenges adjusting to tariffs, with short-term effects potentially significant."

Tariffs on Canadian energy products would be difficult for a U.S. refining sector largely tailored to process the heavy type of crude oil found in Canada. The nation supplies about 4 million BBL/d to the U.S. economy, accounting for 60% of the total.

That could impact retail gasoline prices, should U.S. President Donald Trump follow through on his tariff threats. He's suspended implementation twice this year, though they could become reality in early April.

IIR Energy already sees refineries in maintenance ahead of the introduction of the summer blend of gasoline in May. Among the largest are Marathon Petroleum Corporation's (NYSE:MPC) (Findlay, Ohio) 250,000-BBL/d Robinson Refinery in Illinois, which shuts down for 10 days starting Tuesday. BP plc (NYSE:BP) (London, England) shuts its 250,000-BBL/d Cherry Point Refinery in Washington state for 55 days starting March 20.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can read detailed profiles of the Robinson and Cherry Point refineries.

Trump, meanwhile, is calling for patience as his economic agenda plays out. Market sentiment, however, is grim with the Dow Jones Industrial Average down nearly 7% so far in March. That would hit consumer investments, though they're getting a break because poor sentiment means commodity prices are following the trends in the broader market.

Most of the price at the pump reflects crude oil prices. West Texas Intermediate, the U.S. benchmark for the price of oil, is down about 4% on the month to trade in the mid-$60 per barrel range. It started the year at $72.50.

The EIA expects retail gasoline prices, meanwhile, to average $3.30 per gallon this year, down 20 cents per gallon from last year.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).