Stock-market investors fear a consumer slowdown. Keep an eye on gasoline demand.

By Myra P. Saefong

Renewed weakness in fuel demand as summer approaches could spark downturn fears, analysts say

Prices for gasoline at the pump have climbed from a year ago, contributing to weak demand for the fuel ahead of summer driving season, at the same time investors across markets are on the lookout for signs U.S. consumers are growing more reluctant to open their wallets .

"Gasoline demand is being closely watched as a high-frequency proxy for consumer spending," said Tyler Richey, co-editor at Sevens Report Research.

That was underscored in April, he said. Data from the Energy Information Administration showed that finished U.S. motor gasoline supplied, a proxy for demand, averaged 8.423 million barrels a day for the week ended April 19, the lowest weekly figure in two months.

In late April, U.S. economic data had been "coming in with a whiff of stagflation and the plunge in consumer demand for fuel amplified those worries," said Richey.

"Worries that we could see a similar drop off in economic activity amid the onset of the long-discussed post-COVID-stimulus recession were recently reignited by the combination of stagflationary economic data and the high frequency drop off in gasoline demand," he said.

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Demand data

Over the last four weeks ended May 3, finished U.S. motor gasoline supplied averaged 8.6 million barrels a day, down 4% from the same period last year, according to the latest weekly report from the EIA released Wednesday.

Demand is weak because "consumers have been hit hard by inflation nearly everywhere: the grocery store, the theater, the hotel, the restaurant," said Patrick De Haan, head of petroleum analysis at GasBuddy. "It's sapping their desire to get out."

Inflation has surprised to the upside, with the core personal-consumption expenditures price index rising at a 3.7% annual rate in the first quarter, after two straight quarters at a 2% rate of increase.

Read: Fed's Collins says she's not surprised by unwelcome inflation data

The cost of fuel has also been rising. On average, U.S. drivers were paying $3.641 a gallon for regular unleaded gasoline on Thursday morning, according to data from GasBuddy. That's up about 14 cents a gallon from a year ago.

"Consumers were worried about ongoing inflation pressure and high interest rates in April," Brian Milne, product manager, editor and analyst at DTN, told MarketWatch. "When consumers are worried about their financial situation, they tend to pull back on discretionary spending. That historically has led to less gasoline demand."

Stock- and bond-market investors have noted signs investors are showing increased discretion in spending. Companies including McDonald's (MCD), Shake Shack (SHAK), Wendy's (WEN), Starbucks (SBUX) and KFC parent Yum Brands (YUM) reported lackluster first-quarter sales growth last week.

Taking a look at the bigger picture, the Dow Jones Industrial Average DJIA has edged up by 3.6% so far this year, while the S&P 500 SPX has added 8.8%, as of Wednesday.

See: Financial experts told consumers to stop 'wasting' money eating out. They're finally listening - and companies are rattled.

Weakness in gasoline demand is also a reflection of "improving vehicles efficiencies" as well as weak consumer sentiment, Milne said. "Vehicle miles traveled have increased, yet gasoline consumption is not keeping pace because of these efficiencies."

The latest EIA report, however, showed that gasoline demand improved a bit on a week-to-week basis. It edged up to 8.797 million barrels per day for the week ended May 3, up from 8.618 million bpd a week earlier.

The nearly 8.8 million bpd "gasoline supplied" figure marked a rebound to top the four-week moving average of 8.53 million bpd, and it was above the 2024 average weekly rate of 8.57 million bpd, according to Richey.

Driving season

Going forward, "keeping an eye on the weekly gasoline supplied figure as a proxy for consumer demand for gasoline will be critical, especially relative to its four-week moving average to gauge the underlying trend in fuel demand, and compared with prior year's levels for the corresponding reporting week," Richey said.

'If we see demand roll over again, expect recession fears to rise and volatility across asset classes pick up, including renewed pressure on oil prices now that the geopolitical fear bid has largely gone stale.' Tyler Richey, Sevens Report Research

"If we see demand roll over again, expect recession fears to rise and volatility across asset classes pick up, including renewed pressure on oil prices now that the geopolitical fear bid has largely gone stale," he said.

Meanwhile, DTN's Milne said that it "remains to be seen if weak consumer confidence will prevail into the summer travel season."

Consumers have "defied higher prices for vacations post-COVID," he said. "We may see a repeat this summer."

At the same time, "high retail prices could shorten road travel, but I believe they are less of a deterrent than in the past," said Milne.

Stock Market Today: Are lower-income consumers slowing spending? Take a look at April credit-card data.

GasBuddy's De Haan said he's expecting weaker demand this summer with consumers hit hard by inflation - and "with it, potentially falling gas prices between now and Memorial Day." Memorial Day weekend traditionally marks the start of the summer driving season.

The average retail price for regular unleaded reached $3.69 a gallon on April 19, and there's a possibility that prices have peaked for the year at that level, De Haan said.

On the futures market, reformulated gasoline for June delivery (RBM24) (RB00) has climbed by 20% year to date, settling Wednesday at $2.53 a gallon, outpacing a 10% year-to-date rise in U.S. benchmark West Texas Intermediate crude (CL.1) (CLM24), which saw its June contract settle at $78.99 a barrel Wednesday.

Atlantic hurricane season, however, could bring a "brief surge" in retail gas price if hurricanes knock out Gulf of Mexico infrastructure, he said.

Read: 'Extremely active' hurricane season may lead to late-summer surge in gas prices

-Myra P. Saefong

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05-09-24 1237ET

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