API: Rising oil prices, falling stocks constrain demand

Jan. 17, 2008
Rising oil prices combined with falling inventories to keep US petroleum product demand essentially flat during 2007, the American Petroleum Institute said on Jan. 17.

Nick Snow
Washington Editor

WASHINGTON, DC, Jan. 17 -- Rising oil prices combined with falling inventories to keep US petroleum product demand essentially flat during 2007, the American Petroleum Institute said on Jan. 17.

Demand, which API measures in products supplied, grew by 9,000 b/d to an average 20.696 million b/d this past year from 20.687 million b/d in 2006, API said in its yearend statistical review.

Demand was strongest early in 2007 when crude prices were about $50/bbl and regular grade gasoline retailed for about $2/gal, API Chief Economist John C. Felmy told reporters. Demand pulled back by yearend, when crude prices approached $100/bbl and gasoline retailed for $3/gal, he said.

API's figures showed that December's total product deliveries fell 0.6% to an average 20.7 million b/d in 2007 from 20.8 million b/d in 2006. "Consumers appear to be responding to the higher prices at the margin," Felmy observed.

Meanwhile, domestic crude inventories, which had reached their highest level since 1991 of 355 million bbl at mid-2007, fell by more than 60 million bbl to end the year at 294 million bbl—their lowest level since January 2005, but still roughly in line with the 5-year average for December.

Crude production rises
It was the most rapid 6-month crude inventory drawdown in more than 5 years, according to Ronald J. Planting, information and analysis manager in API's statistics department. "Domestic crude oil production rose for the first time since 1991, but this was at least in part a recovery from below-trend production in 2006, when it had been slowed by the aftermath of hurricanes and by pipeline repairs," he said.

Domestic crude and condensate production grew 1.1% to an average of nearly 5.2 million b/d in 2007 from slightly more than 5.1 million b/d in 2006, according to the statistics. They also showed that natural gas liquids production climbed 1.7% year-to-year to an average of nearly 1.8 million b/d from more than 1.7 million b/d. Increases were concentrated in the Rocky Mountains and the Midwest as oil well completions reached their highest level in decades, API said.

Planting said the combination of recovering crude production, flat domestic demand, and the heavy domestic inventory drawdown reduced petroleum imports during 2007 from the previous year's levels, although they still accounted for about 65% of total domestic deliveries.

The statistics said that total imports fell 1.9% to an average 13.4 million b/d in 2007 from 13.7 million b/d in 2006. Crude imports, excluding purchases for the US Strategic Petroleum Reserve, declined by 1% year-to-year to an average 10 million b/d from 10.1 million b/d, while product imports dropped 4.5% to 3.4 million b/d from 3.6 million b/d during the same period.

Record product output
"Meanwhile, in 2007, the industry exceeded past records for the production of gasoline and distillate fuel oil, Planting said. "It also was the 11th straight year of increases in US refining capacity," he said. Most of the distillate which was refined was "clean diesel," which was introduced in 2006 to help improve air quality.

Gasoline produced during 2007 contained a record amount of ethanol, which accounted for nearly 5% of all gasoline sold. "The industry used some 2 billion gal more ethanol than the government required," Planting said.

Refining capacity grew by 0.4% during 2007 to an average 17.5 million b/d from 17.4 million b/d in 2006, according to the statistics. Capacity utilization rates retreated 1.2 percentage points to an average 88.5% in 2007 from 89.7% in 2006 as a result but still remained well above rates for US industries as a whole.

"Despite high oil prices, the industry worked hard to meet the needs of consumers by producing record amounts of fuel," Felmy said. "These rollercoaster changes are a huge challenge. In order to properly supply consumers, the industry must anticipate demand and that has been very difficult given changing conditions. Nevertheless, it has responded by producing fuel and importing additional supplies as required," he said.

Contact Nick Snow at [email protected].