Analyst: Hurricane Charley apt to show US gasoline demand postponed due to rain

Hurricane Charley is expected to demonstrate how high rainfall levels reduce US gasoline demand, although a 1-month lag is expected before the trend is reflected in the US Department of Energy inventory numbers, said investment banker Friedman, Billings, Ramsey & Co. Inc., Arlington, Va.

Aug. 19, 2004

2 min read

By OGJ editors
HOUSTON, Aug. 19 -- Hurricane Charley is expected to demonstrate how high rainfall levels reduce US gasoline demand, although a 1-month lag is expected before the trend is reflected in the US Department of Energy inventory numbers, said investment banker Friedman, Billings, Ramsey & Co. Inc., Arlington, Va.

The strongest storm to hit Florida in 12 years, Hurricane Charley made landfall on the state's southwest coast Aug. 13, packing winds of up to 145 mph, demolishing mobile home parks, and damaging thousands of buildings. Florida state officials blamed the storm for at least 22 deaths. The storm was said to have killed 5 people in the Caribbean.

"We believe the effect on gasoline demand of the wet weather of July and during the past week, including Hurricane Charley, will most likely be visible in future DOE inventory reports. As such, we anticipate year-over-year consumption growth of only 1-2% in August (it has been 1.5% during the first 2 weeks), which should limit the typical inventory draw during this month, resulting in additional downward pressure on refining margins," FBR analyst Jacques Rousseau said in a Wednesday research note.

Near-record rainfall was reported in June, prompting gasoline demand growth of 0.8% in July, compared with a 7-year average of 1.8% demand growth for that month. The latest June figure compared with a 2.1% increase in US gasoline demand growth for May.

Weather conditions affect gasoline demand, he said. For instance, heating oil inventories rose during the warm 2002 winter—making it very difficult for refiners to make money, he said.

"Rain reduced gasoline consumption levels during the second quarter 2003. A high amount of precipitation in May resulted in June gasoline demand growth of only 1% (vs. the historic average of 1.5-2%), he said.

"We believe there is usually a 1-month lag effect as a buildup of gasoline inventories at the tertiary (wholesale and retail) level during the month of heavy precipitation leads to a decline in inventory restocking, and in turn to a lower implied gasoline demand growth, during the following month," Rousseau said.

Acknowledging that "it may be a futile exercise to attempt to correlate weather and consumption data," Rousseau said he believes high rainfall levels have had a negative impact on US gasoline demand.