Nick Snow
Washington Correspondent
WASHINGTON, DC, July 20 -- The growth of US gasoline deliveries fell in the first half to 0.4% from 1.9% a year earlier as prices climbed to their highest point, in real terms, since the early 1980s, the American Petroleum Institute said July 20.
US refineries produced an average 9.07 million b/d of gasoline during the first 6 months, compared with 9.03 million b/d in the comparable 2004 period, API's midyear statistics showed.
The slower growth in domestic gasoline refining came as the US imported 1.04 million b/d of gasoline and blending components in the first 6 months.
Imports represented more than 11% of total US gasoline consumption in 2005's first 6 months, noted Ronald J. Planting, information and analysis manager in API's statistics department.
"We saw a decline in US gasoline production growth but an increase in imports, resulting in slight growth overall," he said.
That contrasted with first-half diesel fuel deliveries, which rose 3.1% year-to-year to 3.01 million b/d from 2.92 million b/d. Planting said demand for low-sulfur diesel represents "fully one third" of the domestic motor fuels market as a result.
"Refiners responded to these developments in the first half of 2005 by running at very high rates and setting many new records," he said. Refinery utilization averaged 92.8% in the first half, compared with 92% in 2004's initial 6 months. API's statistics also showed that refineries ran at 96.6% of total capacity during June, down from 97.5% a year earlier.
"Production of diesel, as well as distillate fuel oil overall, reached new highs, as did production of jet fuel," Planting said. "Refiners' production of gasoline nearly matched the all-time high reached in the first half of 2004. Because of weakening demand and strong gasoline imports, gasoline inventories still ended the period at above-average levels."
Prices affect demand
Crude oil prices that have increased by more than half since the beginning of the year have affected domestic gasoline demand, said API Chief Economist John C. Felmy.
"Tight markets with increasing demand and limited supply and capacity have led to steadily higher prices, while producers had limited ability to increase production," he said.
Already tight markets were aggravated by three back-to-back hurricanes (Cindy, Dennis, and Emily) that did far less damage than Hurricane Ivan last year but nevertheless interrupted Gulf of Mexico oil production as platforms were evacuated, imports as ports were closed or restricted, and refining as some plants lost power and restricted operations as a precaution.
"The net effect was yet another surge in futures prices, followed by wholesale and retail prices," Felmy said. "While the industry has been doing all it can to meet the needs of consumers, the remainder of the hurricane season could be challenging. We will need to keep the system running at high levels to meet the needs of consumers."
He suggested that consumers haven't reacted as dramatically to higher gasoline prices now as in the early 1980s because they have more disposable income.
Nevertheless, said Felmy, indicators such as the recent plunge in sport utility vehicle sales show consumers are starting to respond. Individual motorists also may be trying to plan their trips for errands and commutes more carefully and keep their cars better tuned to use less gasoline, he said.
Conservation is harder for diesel fuel users, Planting said. "Economic growth has been very strong. If you have manufactured goods, they have to be transported," he explained.
Felmy added, "Imports also are a factor. Diesel demand growth in California, where many foreign products enter this country, has been dramatic."
Domestic crude oil production, meanwhile, declined to an average 5.45 million b/d in the first half to less than 5.54 million b/d a year earlier. Imports grew to an average 10.1 million b/d from 9.98 million b/d during the same period, according to API.
In a separate report, API said gas well completions during the second quarter jumped 16% from the same period of 2004 to 6,555 as oil well completions fell 1% to 2,206 and the number of dry holes climbed 11% to 1,065. Total US completions during the period grew by 11% to 9,826.
E&P payrolls also continued to climb. The Labor Department's Bureau of Labor Statistics said that oil and gas extraction employment grew 1.6% to 125,200 positions in June, on a seasonally adjusted basis, from 123,200 jobs a year earlier.
Government forecasts
API does not predict crude oil or product prices or demand. But the Paris-based International Energy Agency and the US Energy Information Administration separately have lowered their projections for worldwide oil demand growth this year.
In its July Oil Market Report, the IEA reduced its 2005 worldwide demand growth forecast by 200,000 b/d to 1.58 million b/d, due to a weaker outlook for China and the US. But it maintained its forecast of a 1.75 million b/d increase in average worldwide demand during 2006, driven by 1.34 million b/d growth in countries outside the Organization for Economic Cooperation and Development.
"Chinese demand is expected to rebound by 490,000 b/d, outpacing the projected 410,000 b/d increase for the whole of the OECD in 2006," it added. IEA reduced its Chinese demand growth estimate for 2005 by 100,000 b/d to 360,000 b/d, however, because of government oil product price controls.
The latest short-term energy outlook from the EIA predicted worldwide crude oil demand growth will average 2.1 million b/d in 2005 and 2006, or 2.5%/year, down from 2004's 3.4% growth. Chinese demand, which grew by about 1 million b/d last year, is expected to rise by an average 600,000 b/d in 2005 and 2006, it said.
EIA also predicted that US petroleum demand growth the next 2 years will average about 1.3%/year, compared with 2004's 3.5% increase. It expects gasoline demand to grow by 1.5% this year after last year's 1.9% increase.
EIA also raised its forecast of the average West Texas Intermediate crude oil price for 2005's third quarter by $6 to $59/bbl, $15 more year-to-year, in its July forecast. It expects summertime retail gasoline prices to average $2.25/gal nationwide, 8¢ more than it forecast in June and about 35¢ above summer 2004's average.
"Crude oil prices are expected to remain high enough to keep quarterly average gasoline prices above $2.20/gal," EIA added.
The agency expects production outside the Organization of Petroleum Exporting Countries to grow by an average of 800,000 b/d/year in 2005 and 2006. The IEA, meanwhile, anticipates that non-OPEC production growth will climb from an average 900,000 b/d this year to 1.4 million b/d in 2006.
Assuming there are fewer disruptions in the North Sea and Gulf of Mexico and continued healthy increases in the former Soviet republics, Latin America, and Africa, the IEA expects total non-OPEC production to grow from 50.1 million b/d in 2004 to 51 million b/d this year and 52.4 million b/d in 2006.
Contact Nick Snow at [email protected].
