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Bank: Forget high prices, gas demand to fall

The recovery helped spark fuel consumption last year, but Bank of America says supplies will outpace demand for the foreseeable future.

By Money Staff Feb 17, 2014 2:16PM

This post comes from Javier E. David at partner site CNBC.

CNBC on MSN MoneyStubbornly high prices may indicate otherwise, but a host of forces are conspiring to bring down gasoline demand in the United States.

In a research note this week, Bank of America-Merrill Lynch said that the gasoline will remain flat in the near term, but "this strength will not be sustainable."

A major factor at play is an economy that may be losing momentum. A spate of weak data suggest domestic demand will remain contained, BofA said.

Filling fuel tank © Corbis

The recovery helped a fuel consumption rebound in 2013, and the Energy Information Administration is forecasting a 0.2 percent increase in 2014. Still, BofA projected that U.S. gasoline supplies will fall cumulatively by about 700,000 barrels per day (bpd) in the next five years. Gas inventories "are ample, and demand faces a big structural decline in the years ahead."

Another cause is tougher fuel standards. According to energy watchers, the advent of more fuel-efficient cars combined with the retirement of an aging fleet is containing gas demand.

With gas stocks hovering near a record level around 9 million barrels, there may be too much supply chasing too little demand. Not only could that drag retail prices back under $3 per gallon, it could figure prominently in a fight over ethanol standards, which refiners have complained are too stiff to be justified by waning consumption.

In 2013, North American automobile sales surged by 11 percent, topping 15 million for the first time since 2007. A noteworthy development was that consumers shifted toward lighter, more gasoline-efficient cars—brought about in part by stricter federal standards.

Drew Nordlicht, partner and managing director at HighTower, an investment firm based in San Diego, pointed to the fact that automakers are manufacturing cars with lighter aluminum and making engines that are also lighter and save on gas.

Using the Land Rover -- a popular SUV -- as an example, Nordlict said the 2013 model was nearly 1,000 pounds lighter than the version rolled out in 2012. Since 2007, most U.S. cars are getting 18 percent more miles per gallon, he added.

"You have lower fuel costs, more fuel efficient cars competing with each other," Nordlicht said. "The reality is that the U.S. is consuming relatively flat to declining gasoline, even with the economy recovering."

That could spell bad news for supporters of biofuels. The Environmental Protection Agency recently relaxed standards that require refiners to inject at least 10 percent ethanol into their gasoline stocks. With demand on the wane and cars already becoming cleaner and more efficient, it may obviate the need for an ethanol standard, some say.

"All those factors are applying pressure on [the] ethanol lobby," Nordlicht said, adding that it raised the question of "do we still need this as a mandate, because we're already at the point where we've achieved [fuel efficiency] without the ethanol aspect."

More from CNBC

Feb 17, 2014 9:07PM
Oil refineries will simply shut down facilities in order to reduce supplies of gasoline and keep prices high. it works wonders for them in California. 
Feb 17, 2014 8:27PM

gas prices will always go up even if it goes down a cent or two. What we need is fuel competition where no one fuel provider controls the game. We need hydrogen fuel cell technology, electric, natural gas and other fuels to compete with the middle eastern robbers. The price of gasoline in monitored on the computers via every pump that is connected when one fuels up.  Every vehicle that uses any fuel is already known how much fuel is consumed by what the engines in all those vehicles are set to burn as well as what mileage is put on every vehicle when one buys his insurance. The prices are already known by what every holiday travel is monitored.

Feb 18, 2014 8:01AM

There haven't been sufficient tests done on these high-end lighter weight vehicles to know if crappy text pecking people who drive over the speed limit steering with their knee-- will get any better gas mileage. As for the rest of us... the GOP job blockade has lasted more than 6 years now, I'm pretty sure more people will walk or pedal bikes than put the pedal to the metal this year anyway, trying to save whatever money they can.

Grow a garden, folks. Invest your time, labor and money into a worthwhile home pursuit. Quit your job and get a life, only you and I can force corporate America and the GOP into ruin and save our nation from destruction.

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