Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
April marked another month of gangbuster light-vehicle auto sales in the United States, with dealers moving out an annualized seasonally adjusted 16.4 million units according to WardsAuto, the most for an April since 2005.
Analysts credit low gasoline prices and borrowing costs for robust auto sales, which were led by pickup trucks and sport utility vehicles that captured 54% of the market, up 3% from April 2014, the Wall Street Journal reports. These vehicles get more mileage per gallon of fuel than earlier versions, yet their fuel efficiency rating is less than passenger cars.
“The average fuel economy (window-sticker value) of new vehicles sold in the U.S. in April was 25.2 mpg—down 0.2 mpg from March. This drop likely reflects the increased proportion of pickup trucks and SUVs in the sales mix,” said Michael Sivak, director of Sustainable Worldwide Transportation with the University of Michigan Transportation Research Institute.
Sivak notes fuel economy is down 0.6 mpg from the peak reached in August 2014, with the decline in fuel efficiency coinciding with lower gasoline prices, which plunged from June 2014 to multi-year lows in January.
The Energy Information Administration’s weekly price survey shows US regular grade gasoline retail prices dropped from a $3.704 gallon 2014 high registered late June to a $2.066 gallon better-than 5-1/2 year low in January. The average ended April at $2.57 gallon, $1.143 or 31% less than during the comparable year-ago period.
Data from Edmunds.com shows 22% of hybrid and electric vehicle owners when trading their vehicles in choose to buy an SUV compared with 19% in 2014. That’s an interesting statistic, illustrating clear linkage in the affect gasoline prices have on consumer buying decisions.
In April, the Ford Motor Company announced plans to cut 700 jobs and eliminate the third shift at its assembly plant in Wayne, Michigan, with the plant manufacturing small cars and hybrids. The job cuts were due to slow sales of these vehicles, with Ford Focus sales down 5.3% in April from year prior and 15.2% lower for Ford’s hybrid C-MAX brand, which is down 20.6% during the first four months of 2015 compared with a year ago.
Preliminary data from the EIA shows implied gasoline demand up a sharp 314,000 bpd or 3.7% at 8.83 million bpd from Jan. 1 to April 24 from the corresponding period in 2014, and above the five-year average more than 80% of the time, offering another illustration of the effect low gasoline prices have on consumer behavior.
US crude and gasoline prices rallied in April, with speculators driving the futures market for these commodities to the highest point in 2015 on a belief lower oil prices would fuel demand and sharply lower active rigs drilling for oil, now at a nearly six-year low according to Baker Hughes, Inc.’s weekly report would curtail US shale production.
In futures trade on the New York Mercantile Exchange, the gasoline contract—reformulated blendstock for oxygenate blending, rallied above an important resistance point at $1.9620 gallon in late April, holding above $2.00 early May. RBOB’s forward curve is seasonally backwardated—a bullish market structure, with current delivery holding a premium over deferred delivery. Driving demand peaks during the summer months.
Speculators are holding nearly 30% less long positions than in April 2014 data from the Commodity Futures Trading Commission shows and market sentiment is bullish, so we should expect further price gains in May. If the uptrend in retail gasoline prices does continue, the affect it has on consumer’s driving behavior will be closely watched for signs of a return to frugality.