The gasoline demand debate

It's a main component behind high prices, but whether consumers are actually using more gas is a topic of dispute.

By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Ravenous demand for gasoline in the U.S. has been a main reason for the surge in prices over the last couple of months.

For the first time ever, gasoline demand failed to drop below 9 million barrels a day in the slow winter season, according to government figures.

And demand growth is still chugging along at 1.7 percent a year. That's on the high side of normal - and a far cry from the expected easing we were supposed to see as Americans drove less and bought more efficient vehicles in the face of high energy prices.

But the authenticity of the strong demand numbers - which traders have used to help bid up gas prices - is a matter of debate.

"They're very flawed," says Tom Kloza, chief oil analyst at the Oil Price Information Service. "You'd have to do a lot of convincing to get me to believe this demand is coming at the pump."

Kloza takes a slightly sinister view of what's behind those numbers: basically, big trading companies are fudging the numbers they report to Energy Information Administration (EIA) in an effort to influence prices.

"I think the compliance in that sector is very poor," says Kloza, referring not so much to big oil companies such as Exxon Mobil (Charts), Chevron (Charts) or BP (Charts) but rather wholesalers and other middlemen that blend and store gasoline, as well as investment banks that take physical delivery of commodities.

"If I'm a wholesaler who makes money on prices going higher, I may forget to report something," he said.

Doug MacIntyre, a senior oil market analyst at the EIA, says the agency relies on numbers provided to it by the industry.

But "we don't take the numbers just as a given," MacIntyre said.

He says there are checks to ensure the accuracy of the data, such as referencing the current numbers with what the company has reported in the past.

MacIntyre says most of the mistakes EIA finds tend to be simple human errors, and that the agency has never accused anyone of deliberately falsifying the numbers.

Another trader also took a more conventional view of what's behind the demand numbers.

"We've seen some great job growth over the last couple of months, and it has gotten people moving into their cars," said John Kilduff, an New York-based energy analyst at Fimat, a brokerage firm.

The strong job growth is giving people money, which means they are less worried about paying high gas prices, according to Kilduff.

MacIntyre also says it took nationwide average gasoline prices above $3 a gallon before there was an actual drop in demand growth - and even then it was still a reduction in growth, not a reduction in gallons used.

Kilduff dismisses the notion that trading companies are deliberately manipulating the market.

"Every time there is an investigation, nothing comes up," he said. "Given the scrutiny the industry faces, that's a fool's errand."

Both Kilduff and Kloza agree that ethanol could be playing a small part in the strong demand numbers.

Because ethanol is only about 70 percent as efficient as gasoline, and because EIA measures gasoline that is already blended with ethanol when it computes its demand numbers, people need to use more gasoline to go the same amount of miles.

But both analysts say ethanol's contribution to rising demand is small, as the ethanol concentration in gasoline is typically less than 10 percent.

And MacIntyre notes that ethanol, which is added to gasoline to make it cleaner burning, replaced the toxic MTBE, which itself is about 20 percent less efficient than gasoline.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.