Americans on the Road to Recovery - but Not Driving
NEW YORK (TheStreet) -- Gasoline demand destruction appears to be in force despite signs that the economy appears to be on the road to recovery.
The latest government jobs data revealed far better-than-expected jobs additions in the U.S. economy in January.
But while the latest jobs data show that the economy added 243,000 jobs in January and that the jobless rate fell to 8.3% -- the lowest level since February 2009 -- consumer confidence, income and spending remain lackluster, points out the Conference Board. "We remain cautious," says Kathy Bostjancic, director of macroeconomic analysis with the Conference Board. "While hiring may be picking up, the paychecks that go with it are not." Indeed, with elevated gasoline prices showing no signs of reprieve, the Conference Board earlier this week reported that consumer confidence levels dropped to 61.1 in January after increasing in December.
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It's also no surprise then, that gasoline demand continues to post "increasingly severe" year-over-year declines, says John Gamel, gasoline analyst for MasterCard Advisors SpendingPulse in his latest gasoline demand report. The latest report shows that gasoline demand declined 4.6% in the four-week moving average for the week ended Jan. 27, compared with a year ago. This is an additional 0.7% drop below the preceding week's mark and the 45th straight year-over-year decline. This, as the average price of gasoline remains at $3.39 a gallon for the third week in a row, according to the report. That's 9.4% higher than a year ago, amid very high oil prices,
"In the current environment, I don't see a meaningful reduction in oil prices in the cards," says Phil Weiss, equity analyst at Argus Research.
With the gap between the average U.S. consumer's paycheck and high average national retail gasoline prices still too wide for most Americans, an increasing number of fuel-efficient cars on the road and an aging population that is travelling less miles, gasoline demand destruction looks to be in force.
"Gasoline demand in the U.S. is at such a low ebb," comments Matt Smith, commodities analyst at Schneider Electric's Summit Energy.
"It's at the lowest level since Jan. 2004," adds Addison Armstrong, senior market research director, Tradition Energy.
The declining demand for gasoline has perhaps been one of the most painful forms of any kind of fuel demand slowdown that refineries have been feeling -- and even oil giants such as
Exxon
(XOM) - Get Report
have been feeling the sting. In the U.S. alone, gasoline demand accounts for over 40% of the total demand for the oil products produced by refineries, according to Abhishek Deshpande, PhD, energy analyst, Natixis. So, even a slight dip can put a big damper on crude oil refinery profits.
Deshpande says that so far, it's far more likely that gasoline has been the main culprit behind many of the refinery woes seen in the country. "A large proportion of the drop in refinery profits could be associated with the drop in gasoline demand, particularly in the U.S.," he says.
Higher oil prices and lower fuel demand in the U.S. and most developed economies -- thanks to tepid economic conditions -- have led to the closure of about 18 refineries in the U.S. and Europe.
ConocoPhillips
(COP) - Get Report
,
Sunoco
(SUN) - Get Report
,
Valero
(VLO) - Get Report
and
Hess
(HES) - Get Report
are among the famous names that are reported to be paring, winding or shutting down refining operations.
In the U.S., "you need to breakeven or make money on gasoline to have a long-term prospect of success as a refiner," Tom Kloza, chief oil analyst at the Oil Price Information Service comments.
Earlier this week, energy behemoth Exxon only narrowly beat quarterly estimates at a net income of $9.4 billion, or $1.97 a share, after reporting a drop in U.S. refinery and marketing profits and non-U.S. refinery and marketing profits to $30 million from $226 million and to $395 million from $924 million in the fourth quarter. In Japan, Exxon is selling its refining and marketing business there to partner
TonenGeneral Sekiyu K.K.
for $3.9 billion.
Chevron
(CVX) - Get Report
, the second-largest integrated energy company in the U.S. had earlier also reported taking a hit to its refining operations, though like Exxon, has seen higher oil prices support its upstream operations.
In a time when high quality, light sweet crude oil prices remain high, so-called "complex" refineries that are able to process cheaper, lower-quality crudes are typically doing quite well, says Kloza. Names such as
HollyFrontier
(HFC) - Get Report
are among the companies that immediately come to mind. In the meantime, Exxon, with its integrated business model and sheer size, will probably "make it" says Kloza.
"Obviously they took big hit on refining, but look how much
they made in spite of it," adds Phil Flynn, senior energy analyst, PFGBest.
-- Written by Andrea Tse in New York.
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