Make It Premium, Please: Americans Demand Better Gas for Bigger Cars

Make It Premium, Please: Americans Demand Better Gas for Bigger Cars
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Make It Premium, Please: Americans Demand Better Gas for Bigger Cars

Nearly 42 million Americans will make road trips of 50 miles or more to celebrate Thanksgiving this year, an increase of 0.7% from last year, AAA says. And more of them will be driving bigger, less fuel-efficient vehicles and pumping premium gasoline.

This underscores one of the most surprising trends in the oil markets this year – strong demand. Growth has been concentrated in gasoline consumption, not just in the United States, but globally, most notably in China and India.

When reviewing the data, a few things jump out:

  • After lagging employment growth for nearly a decade, road trips in the U.S. are increasing nearly twice as fast as employment growth.
  • Low gasoline prices have sparked an SUV buying frenzy – most remarkably in China, where SUV sales are up nearly 50% year over year, despite stagnant vehicle sales overall.
  • Consumers are buying less fuel-efficient cars – a notable break from a decade-long trend of incremental efficiency gains.
  • U.S. consumers are buying more premium gasoline, recycling some of the savings from lower prices at the pump. Demand for premium gasoline is up 13% year to date, compared with just 3% for regular.

This leads us to a few investment conclusions:

  • Low prices are working to help restore oil balances, albeit slowly.
  • Commodities with greater leverage to consumers and services should outperform those with greater leverage to the industrial cycle.
  • Consumer fuel demand (both gasoline and jet) suggests the consumer in aggregate appears to be doing all right, despite overall economic malaise globally.

To which we say: Happy Thanksgiving.

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