Gasoline Demand Growth to Slow This Year on EV Growth in China, U.S.

Thomas

Economic

Commodity

Energy

Summary:

Global petrol demand growth could halve in 2024, squeezing second-half refinery margins, analysts said, driven by a shift to electric cars in China and the United States and a return to normal consumption after last year's bounce following COVID-19.

In the lowest growth since 2020, demand is likely to rise 340,000 barrels per day (bpd), to stand at 26.5 million bpd this year, says consultancy Wood Mackenzie, down from growth of 700,000 bpd last year, as China nears the point of peak transport fuel demand and the U.S. has surpassed it.

"Penetration of electric vehicles has been increasing in U.S. and China," said Woodmac analyst Sushant Gupta.

"For this year Chinese demand will grow by only 10,000 bpd, due to higher EV uptake."

Consultancy Rystad Energy pegs global gasoline demand at about 26 million bpd in 2024, up about 300,000 bpd from growth of about 700,000 bpd in 2023, fuelled by the consumption boom after the pandemic, said analyst Mukesh Sahdev.

China, once the world's driver of gasoline demand, is expected to account for more than half of all EV sales this year, the International Energy Agency has said.

Gasoline consumption by the world's largest crude importer is set to grow by about 1.3%, or about 2 million tons, to 165.1 million metric tons (3.8 million bpd) this year, forecasts by a research arm of China National Petroleum Corp (CNPC) show.

The research arm of China's biggest refiner, Sinopec, expects gasoline demand to rise by 1.7%, or about 3 million tons, to stand at 182 million tons this year.

As falling prices spur demand, the share of electric cars sold this year could reach 45% in China, about 25% in Europe and more than 11% in the United States, the IEA estimates.

By comparison, booming car sales, along with high economic growth and low EV penetration, are driving gasoline demand in India and Indonesia.

India's petrol consumption will hit a fresh record of 39.2 million tons (908,000 bpd) in the year to March 2025, up about 5% from 37.2 million tons in the year to March 2024, government estimates showed.

MARGIN PRESSURE

U.S. gasoline consumption fell to about 376 million gallons per day (8.94 million bpd) in 2023 after hitting a record 392 million gallons in 2018, according to the U.S. Energy Information Administration.

Demand in 2024 is expected to be flat, analysts said.

As a result, U.S. refining margins are expected to stay under pressure after the peak summer driving season, Woodmac and Rystad analysts said.

In Europe, gasoline demand will grow by 50,000 bpd or 2.3% in 2024 to 2.19 million bpd, in line with recent years, FGE said.

Stagnant European petrol demand and rising competition from Nigeria's new Dangote refinery, the largest in Africa and Europe that could add 280,000-300,000 bpd of gasoline to global balances, will put European refining margins under pressure, Woodmac said.

Gasoline margins across the United States and Asia have gained 85% this year, to stand at about $29 from a barrel of WTI crude on May 1 and 29% and about $13 from a barrel of Brent crude on April 30, respectively, on expectations of robust summer demand, LSEG data showed.

Margins gained strength early this year due to scattered refinery outages in Asia and the U.S., while higher freight costs due to attacks on Red Sea shipping and Russian energy infrastructure supported European gasoline markets.

Eurobob gasoline was worth around $23 from a barrel of Brent crude on May 1, up from the $19.67 average in April last year, the data showed.

Source: Reuters

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Remarks of Officials

Fed Governor Michelle Bowman delivered a speech on May 3, the main content of which is as follows.

We have not seen further progress over the first quarter of this yea. The 12-month measures of total and core personal consumption expenditures (PCE) inflation have moved roughly sideways since December. With the latest core PCE inflation well above average inflation in the second half of last year, I expect inflation to remain elevated for some time. The recent pickup seems to be evident across many goods and services categories.

Economic activity has remained strong over the first three months of this year. Consumer spending on services remained robust, and residential activity and business investment in equipment and intangibles strengthened. Payroll employment has increased at a strong pace through April this year, partly reflecting increased immigrant labor supply. The labor market remained tight, with the unemployment rate remaining below 4%, and the number of job openings relative to unemployed workers is still above its pre-pandemic level. Wage growth has remained higher than the pace consistent with our 2% inflation goal.

The current stance of monetary policy is restrictive, and my baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks, including that spillovers from regional conflicts could disrupt global supply chains and the loosening in financial conditions and additional fiscal stimulus could add momentum to demand. Finally, there is a risk that strong consumer demand for services, increased immigration, and continued labor market tightness could lead to persistently high core services inflation. Given the current low inventory of affordable housing, the inflow of new immigrants to some geographic areas could result in upward pressure on rents.

In light of these risks, and the general uncertainty regarding the economic outlook, I will continue to watch the data closely as I assess the appropriate path of monetary policy. I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.

Bowman's Speech

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Cohen

Economic

China's services activity expansion slowed a touch amid rising costs, but growth in new orders accelerated and business sentiment rose solidly in a boost to hopes of a sustained economic recovery, a private sector survey showed on Monday.

The Caixin/S&P Global services purchasing managers' index (PMI) eased to 52.5 from a 52.7 in March, remaining in expansionary territory for the 16th straight month. The 50-mark separates expansion from contraction.

The world's second-largest economy grew faster than expected in the first quarter but it is still facing a host of challenges including a prolonged property slump and lacklustre domestic demand.

"The strong start to the year is consistent with the Caixin manufacturing and services PMIs, which have remained in expansionary territory for several straight months," said Wang Zhe, Senior Economist at Caixin Insight Group.

Overall new business hit the highest since May last year, while better overseas demand and growth in tourism activity helped propel growth in new export orders to their fastest pace in ten months.

That in turn helped lift business confidence among Chinese service providers in the 12 months ahead to the highest this year.

Companies did continue to face some cost pressure, with input price rises for material, labour and energy though the uptick remained below the long-run survey average. That led firms to increase prices charged to their customers, while they remained reluctant to fill vacancies created by departures.

"Consistent efforts should be made to ensure earlier policies are implemented effectively and promptly, maintaining the current economic recovery momentum and eventually improving overall market expectations," Wang said.

Economists say the Caixin survey is skewed more towards smaller, export-led firms than the much broader official PMI, which showed a sharp slowdown in services sector activity for last month.

The Caixin/S&P's composite PMI, which tracks both the services and manufacturing sectors, rose to 52.8 last month from 52.7 in March, marking the fastest pace since May in 2023.

China's economy has struggled to mount a solid post-COVID revival, mainly due to the ripple effects on confidence and demand stemming from a prolonged property sector crisis.

While pockets of strength in the first quarter GDP report raised hopes of a steady recovery through the rest of the year, the general consensus among economists is that a robust revival is some way off.

Investors and analysts say China's structural reform efforts must go hand-in-hand with greater stimulus measures to foster a stronger and sustainable economic recovery.

Source:Reuters

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Daily News

[Quick Facts]

1. Fed's Goolsbee says the US rate-path 'dot plot' needs more context.

2. Yellen says Fundamentals still point to slowing inflation.

3. If Israel attacks Rafah, Houthis will attack all Israel-related ships.

4. U.S. services PMI contracts in April after 15 months of expansion.

5. Nonfarm payrolls unexpectedly cool down, fueling rate-cut expectations.

[News Details]

Fed's Goolsbee says the US rate-path 'dot plot' needs more context

Chicago Fed President Austan Goolsbee said on Friday that the U.S. Federal Reserve should beef up its "dot plot" by including the individual economic expectations that inform each one. The dot plot is just a collection of opinions without economic content. For example, it is impossible to know whether a policymaker who predicts fewer rate cuts this year is concerned about overheating or simply believes that the economy has the capacity to grow faster and therefore can tolerate higher rates.

The goal of Fed communications should be to lay out the rationale for policy decisions, and the dot plot falls short. A matrix that anonymously matches the economic forecasts to the rate path for each participant would answer some important questions.

Yellen says Fundamentals still point to slowing inflation

U.S. Treasury Secretary Janet Yellen said last Friday that she still sees underlying price pressures receding even as a tight housing supply has helped stall the downward path of inflation.

In my view, inflation expectations are well anchored. The labor market is strong, but it's not a significant source of inflationary pressure. Progress on housing inflation has been slower than expected so far, largely because of supply issues. Housing is a real problem in the United States due to a huge shortage of affordable housing, and in part because of high interest rates. Housing is one of the most sensitive sectors, so new housing construction isn't at levels that would be needed to really moderate the price of housing. But it's highly likely that housing costs will fall according to the data on rental prices for new apartments and single-family homes.

If Israel attacks Rafah, Houthis will attack all Israel-related ships

Yemen's Houthis will attack ships associated with Israel or traveling to Israeli ports if the Israeli army attacks Rafah in the southern Gaza Strip, Houthi spokesman Yahya Saria said in an interview with the Al-Masirah TV channel. "The Yemeni armed forces are ready to attack all ships heading to Israeli ports in any area within reach, including the Mediterranean Sea", Saria said.

U.S. services PMI contracts in April after 15 months of expansion

The U.S. services PMI for April posted a reading of 49.4, marking the first contraction since December 2022 after 15 months of growth. The decline in the composite index in April was driven by lower business activity, slower growth in new orders, faster deliveries from suppliers, and continued contraction in employment. Survey respondents pointed to a general slowdown in overall business. Employment challenges continued to be largely attributed to difficulties in filling positions and/or controlling labor costs. Most respondents said inflation and geopolitical issues remain a concern.

Nonfarm payrolls unexpectedly cool down, fueling rate-cut expectations

The U.S. April nonfarm payrolls (NFP) unexpectedly cooled down to only 175,000, significantly lower than the previous reading and expectations, marking the smallest increase in six months. The unemployment rate rose to 3.9%, higher than the expected 3.8%. Average hourly earnings increased by 0.2% from a month earlier and by 3.9% from a year earlier, the lowest rate of growth since June 2021.

Job growth slowed in the leisure and hospitality, construction and government sectors. Employment declined in automakers and temporary service providers. Mainly healthcare, transportation and retail trade sectors saw job growth.

The NFP data boosted expectations for a rate cut. More importantly, the slight rise in unemployment suggested a cooling of the labor market. U.S. Treasury yields and the U.S. dollar both fell and stock index futures rose after the report was released. Swap contracts resumed expectations for two 25bp rate cuts by the Fed in 2024. Traders expected the Fed's first rate cut to occur in September compared with November previously. The likelihood of a September cut has increased to over 50%.

The data's soft across the board from the Fed's perspective, which is what really matters here and an unemployment rate of 3.9% is not something disastrous. This indicates an economy that is not declining dramatically, but it definitely indicates a looser labor market. The Fed is looking for data points that pull them back away from the long period of tightening. The one caveat would be that the labor market reports are notoriously fickle and what we see this month might not be what we turn around and see next month. It gives the Fed some hope, but it does not establish the trend for them.

Policymakers will not feel more comfortable with job market-induced inflationary pressures just because of one month of good data. It needs to see more evidence of a slowdown or an unexpectedly large drop in employment.

[Focus of the Day]

UTC+8 19:30 ECB Governing Council Member Nagel and ECB Executive Board Member Panetta Speak

UTC+8 20:25 Swiss National Bank Chairman Jordan Speaks

UTC+8 00:50 Next Day: Richmond Fed President Barkin Speaks on the Economic Outlook

UTC+8 01:00 Next Day: New York Fed President Williams Speaks

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Alex

Economic

Central Bank

Australia’s central bank will likely keep its key interest rate at a 12-year high and stick with it for much of the year to restrain inflationary pressures underpinned by a surprisingly tight job market.

All but one of the economists surveyed by Bloomberg expect the Reserve Bank will hold the cash rate at 4.35% for a fourth straight meeting on Tuesday, while reinstating a hawkish bias to acknowledge sticky consumer prices. The decision will come at 2:30 p.m. in Sydney, together with updated economic forecasts. Governor Michele Bullock will hold a press conference an hour later.

Australia’s policy meeting follows a highly-anticipated decision by the Federal Reserve last week, when Chair Jerome Powell kept hopes alive for a rate cut this year while acknowledging a burst of inflation has reduced confidence that price pressures are ebbing. The RBA looks like it may face a similar path.

RBA Seen Keeping Key Rate At 12-Year High As Inflation Stirs_1

“The RBA will remain data dependent and will want to keep all options on the table,” said Andrew Boak, chief Australia economist at Goldman Sachs Group Inc. “The risk of a restart in the tightening cycle has increased but our base case remains for the RBA to start easing in November 2024.”

Governor Bullock has maintained maximum policy optionality this year, saying after the March 19 decision that she isn’t ruling anything in or out and that she needs to be confident that price growth is moving sustainably back to the 2%-3% target. The RBA has insulated itself by forecasting an extended timeline for inflation’s “last mile,” only expecting it to move inside the band late next year.

Economists, who were forced to recalibrate after worse-than-expected first-quarter inflation, now see a first rate cut in November.

They anticipate Tuesday’s statement will sound hawkish and expect the RBA’s quarterly statement on monetary policy will continue to show that price gains will stay above target through much of 2025, with unemployment seen to remain low.

Money markets are pricing roughly 12 basis points of rate hikes by August, a sharp turnaround from expectations of a rate cut by year end. The rapid repricing caused Australian bond yields to jump across the curve last month, with the policy sensitive three-year notes climbing 42 basis points, the biggest monthly rise since June. Three-year yields traded at 4.03% early Monday.

“Yields in Australia are getting quite enticing for investors across the board,” said James Wilson, a senior portfolio manager at Jamieson Coote Bonds in Melbourne, the fifth biggest holder of three-year notes.

RBA Seen Keeping Key Rate At 12-Year High As Inflation Stirs_2

Data has indicated that Australia’s economy is slowing with GDP contracting on a per-person basis, while tepid retail sales reflect downbeat consumer sentiment.

Last week, supermarket giant Woolworths Group Ltd. said it has seen a “noticeable shift in customer sentiment and shopping behaviors since Christmas.” Auto-parts makers Bapcor Ltd said days ago that trading conditions in its retail business remain challenging due to weak consumer confidence and lower levels of discretionary spending.

Stubborn inflation is largely to blame. At the same time, the labor market remains tight with unemployment at 3.8%. Data out on Monday showed a gauge of Australian job ads rose 2.8% in April to be up 36.5% from its pre-pandemic level.

That has given policymakers optimism that they can engineer a soft landing — bringing down inflation while holding onto the enormous job gains of recent years. So far, that’s looking achievable with National Australia Bank Ltd. citing surprising resilience in business credit growth despite elevated inflation and borrowing costs.

It’s a complicated backdrop for the government as it prepares the ground for an election due by May 2025. Economists say the RBA will need to be mindful of the actions of Treasurer Jim Chalmers who unveils the budget next week.

“It’s crucial that the federal budget remains neutral at best to complement the RBA’s efforts; a stimulatory budget risks undoing the progress made so far in tackling inflation,” said Devika Shivadekar, an economist at consultancy RSM Australia.

She expects the RBA will only make “pivotal decisions” in November after it has seen two more quarterly price prints.

Source:Bloomberg

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Owen Li

Cryptocurrency

The dashboard from Visa and Allium Labs is designed to strip out transactions initiated by bots and large-scale traders to isolate those made by real people. Out of about $2.2 trillion in total transactions in April, just $149 billion originated from “organic payments activity,” according to Visa.

Visa's finding challenges stablecoin proponents' argument that the tokens, pegged to an asset like the dollar, are poised to revolutionize the $150 trillion payments industry. PayPal Inc. and Stripe Inc. are among the fintech giants making inroads into stablecoins, with Stripe co-founder John Collison in April citing “technical improvements” for being bullish on the tokens.

“It says that stablecoins are still in a very nascent moment in their evolution as a payment instrument,” Pranav Sood, executive general manager for EMEA at payments platform Airwallex, said of the data. “That's not to say that they don't have long-term potential, because I think they do. But the short-term and the mid-term focus needs to be on making sure that existing rails work much better.”

Tracking the “real” value of crypto activity using blockchain data has always been a challenge. Data provider Glassnode has estimated that the record $3 trillion of total market circulation assigned to digital tokens at the peak of the 2021 bull market was actually closer to $875 billion.

With stablecoins, transactions can often be double-counted depending on the platform users are transferring funds to. For example, converting $100 of Circle Internet Financial Ltd.'s USDC to PayPal's PYUSD on the decentralized exchange Uniswap would result in $200 of total stablecoin volume being recorded on-chain, said Cuy Sheffield, Visa's head of crypto.

Visa itself, which handled more than $12 trillion worth of transactions last year, is among companies that could stand to lose out should stablecoins become a generally accepted means of payment.

The total value of all stablecoins in circulation could reach $2.8 trillion by 2028, analysts at Bernstein predicted last year. That would be an almost 18-fold increase from their combined circulation now. Because transactions using such tokens are instantaneous and almost without cost, many in the crypto industry argue that they're perfectly suited for disrupting the payments sector.

PayPal launched its PYUSD stablecoin last year, seeking a solution for instant and lower-cost transfers within its wider payment infrastructure. Stripe said on April 25 it's allowing merchants using its platform to accept stablecoins for online transactions.

Even so, Airwallex has seen tepid demand from its customers for stablecoin-based payments solutions as many still don't regard the technology as user-friendly enough, according to Sood.

“It's a really significant barrier to overcome,” he said. “It's important to remember that in the US, people are still using checks to pay for somewhere between 40% and 60% of business payments, which gives you a sense of where the market really is in terms of technological adoption.”

Source: Fortune

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Kevin Du

Stocks

With the notional value of zero-days-to-expiration contracts tied to the S&P 500 hitting roughly $862 billion in April, almost 90% of 300 MLIV Pulse respondents said they expect the growth to continue. The twist? They're about evenly split on whether it will grow steadily or end in calamity.

Equity derivatives with less than 24 hours to expiration, known as 0DTE, have become one of Wall Street's most popular trades as investors big and small seek to navigate uncertainty over the economy and central bank policy. Trading in 0DTE made up 45% of the total options volume for the S&P 500 last year, about double the level from before the products became widely available in the second quarter of 2022.

“The exchanges are making money hand over fist by allowing daily options. As you've seen, the volume has gone up because more and more people have access to it,” said Phil Pecsok, chief investment officer of Anacapa Advisors. “They're only going to become more prevalent.”

The scale of the boom has stirred controversy. There are concerns the activity in ultra-short-dated options may be affecting stock volatility, while research has suggested that retail investors using them mostly lose money.

A majority of survey contributors showed awareness of the latter risk, with 56% expressing the view that it's too easy to lose money with the tools. But the concerns didn't extend to limiting retail access to 0DTE, with 76% of respondents — almost two thirds of whom are professional investors — saying it was only fair to keep them easily available.

Initially picked up by high-frequency traders to make wagers or hedge positions, zero-day options are gaining traction among sophisticated quant pros and small-fry investors alike. They have also found their way to the exchange-traded funds arena.

Both academic and Wall Street researchers have flagged potential dangers with this wave of trading, including that it may make the market more volatile on an intraday basis. JPMorgan Chase & Co. strategist Marko Kolanovic has warned their popularity risks reprising past disasters such as the 2018 Volmageddon episode, a famous blowup that shattered a lengthy calm in US stocks. The theory is that a big stock move could force options dealers, who take the other side of trades and must buy and sell shares to keep a market-neutral stance, to unwind a large amount of their own positions, accelerating any selloff.

The exchange at the center of the boom, Cboe Global Markets Inc., has argued that the wide range of use cases for 0DTE means the trades aren't creating the kind of crowded one-way bet that might make the market vulnerable to shocks. Cboe expanded expirations of S&P 500 options to every work day about two years ago and later also allowed zero-day options for the Russell 2000 Index.

In the latest expansion, Nasdaq Inc. said it plans more short-term options on commodities and Treasury ETFs.

Opinions about the impact of 0DTE on the underlying market were fairly evenly split in the MLIV survey. Only around a quarter of respondents said they worried a lot about it, with 34% not worried and 41% only a bit worried.

Asked how they would describe 0DTE, the MLIV Pulse contributors — who are predominantly in the US or Europe — were often scathing. “Gambling” was the most common phrase offered. A “slot machine in Vegas,” “atom bombs,” and “tools resulting in a wealth transfer from retail and unsophisticated institutions to exchanges and market makers,” were among the negative descriptions.

The positive contributors largely focused on their usefulness as a hedging tool. As one participant said: “It is a fairly inexpensive way for investors to take a position in the directional move of a stock without having to own the underlying shares.”

So far, 0DTE are available only for major indexes and exchange-traded funds. Their popularity has fueled speculation that zero-day contracts could be broadened to cover single stocks. Asked about that potential expansion, survey respondents were perfectly divided.

The MLIV Pulse survey is conducted among Bloomberg readers on the terminal and online by Bloomberg's Markets Live team, which also runs the MLIV blog. This week, the survey asks if Bitcoin or large cap US tech stocks offer a safe haven. Share your views here.