American Drivers Signal a Top in Gasoline Demand

Gasoline demand hit an earlier peak in 2007, just before a financial cataclysm and the Prius mania sparked by triple-digit oil prices undercut it for the best part of a decade. Even the then-chief executive of Exxon Mobil Corp. thought it had peaked for good. By 2016, however, demand had recovered all the lost ground and hit a new high in 2018. Beware peak prediction, so to speak. Still, regaining demand’s 2018 level now would mean closing a fairly persistent deficit of about 400,000 barrels a day in the face of several big headwinds.

The big drivers of gasoline demand are distance driven and fuel economy. Distance driven is, in turn, a function of how many drivers there are — population, essentially¹ — and economic growth. Neither look conducive to a rebound in gasoline demand.

The US civilian population is expected to grow at just 0.6% a year over the next decade, the slowest rate since the Bureau of Labor Statistics began publishing such data. What’s more, the older cohort will grow fastest, and they tend to drive the least, with retiring boomers’ annual distance about 40% shorter than the national average. Meanwhile, the International Monetary Fund forecasts gross domestic product to grow by 2.05% per year on average through 2030 — respectable but slightly slower than the past five years and slower still compared with the decade prior to that, when gasoline demand was recovering.

Now consider fuel economy. The Prius’ moment in the late-aughts was relatively brief and US drivers resumed their shift toward heavier trucks and SUVs. Even so, average fuel economy kept rising, spurred in part by tightened federal standards and the nascent penetration of electric vehicles. Divide vehicle miles traveled by gasoline consumption and you get a crude proxy for this.

The recent slowdown in sales of EVs and the potential election of another Trump administration inclined to make tailpipes great again could conceivably curb efficiency gains. Given the economic and demographic headwinds, however, they would have to slow to a stop or even reverse in order to get back to 2018 demand levels sometime this decade.² And while legacy automakers in the US have scaled back targets for battery electric vehicles, enthusiasm for plug-in hybrids has risen, which is still bullish for efficiency and bearish for gasoline.

On any reasonable view, US gasoline demand, accounting for one in every 12 barrels of oil consumed worldwide, has peaked.

This would tip the global gasoline market toward outright decline. Global gasoline demand was about 26 million barrels a day in 2022, or about a quarter of the global oil market, according to David Doherty, Bloomberg NEF’s head of research. Using figures from the International Energy Agency, he calculates that countries that appear to have reached their peak in 2019 or before accounted for about 60% of global gasoline consumption — equivalent to 16% of global oil demand — in 2022. The US is the crucial factor flipping the “likely peaked” markets from the minority to the majority.

Some of those may yet surpass prior peaks, of course. But most are aging industrialized societies, many of them European nations where the last peak in gasoline demand occurred prior to 2010. Even in China, the second-largest gasoline market and one that has kept growing, demand is forecast by the International Energy Agency to decline slightly next year and sales of EVs are already overtaking traditional vehicles. Plus, unlike the US, China’s population is shrinking already.

“Peak” tends to imply a sharp drop-off, but vehicles often last for a decade or more, so turnover to more efficient models or those using alternative drivetrains is slow. The likelier path for US gasoline demand this decade is a plateau or gentle decline.

Oil producers and refiners can draw only so much comfort from that. Even absent a sharp drop-off, having a significant and rising share of your market stop growing and enter decline represents a structural drag on growth and, thereby, on valuation multiples on energy stocks. And as Doherty lays out in a recent analysis, the headwinds building in gasoline consumption will inevitably spread to commercial vehicles, including heavy trucking, putting all road fuels, including diesel — comprising some 45% of the global oil market — in play over the coming years.³

Slow or absent growth globally represents a shock even before getting to outright shrinkage. With summer gone, crude oil prices have fallen this week as minds focused on the prospect of OPEC+ beginning to unwind production cuts. Ideally, from their perspective, these returning barrels would be absorbed by rising demand. The drop in prices portends a less optimal outcome: excess oil pushing prices down. Now imagine the battle for market share that will ensue when the safety valve of rising consumption eventually closes off entirely.

^1. One caveat to this is that a rising number of vehicles per capita would also boost the amount of miles driven. However, the US is a mature market and vehicles on the road topped out at about 0.85 per capita in the early 2000s, a ratio that had roughly doubled since 1960 (sources: Department of Transportation, Census Bureau). After a generation of being stuck at about 0.85, it's fairly safe to assume that it remains flat; that is, vehicle population is now mostly a function of the general population. This is especially so if one considers that ride-sharing may take a rising share of travel in future, pushing in the other direction.

^2. One way to think about this is that, in 2023, there were about 280 million vehicles on US roads traveling an average of 11,645 miles each at an implied 23.7 miles per gallon (i.e., using about 491 gallons each per year). Assuming 0.6% annual population growth and vehicle ownership remaining constant at 0.85 per capita, then if fuel economy stopped rising, gasoline demand would overtake the 2018 peak of 9.33 million barrels a day in 2030. However, assume an annual gain of just 0.1 miles per gallon in fuel economy per year and demand rises to slightly less than 9.1 million barrels a day by the end of the decade. Such a gain would be roughly equivalent to the average gain over the past decade implied by dividing vehicle miles traveled by gasoline demand. This would actually be slightly less aggressive than assuming new vehicles enter with fuel economy matching the tighter requirements set out by the Biden administration in June.

^3. "2024 Road Fuel Outlook - Tipping Point Imminent" by David Doherty and Jade Patterson, Bloomberg NEF (published August 19, 2024).

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