Nick Snow
Washington Correspondent
WASHINGTON, DC, Jan. 19 -- Higher prices and warmer weather helped US oil demand drop last year despite strong growth in diesel fuel demand, the American Petroleum Institute said on Jan. 19.
"Lingering impacts from 2005 hurricane damage initially restricted petroleum refining, tight international crude oil markets led to record nominal crude oil prices, and record ethanol prices contributed to near-record gasoline prices by the peak driving season. Then, as production and imports increased and demand abated, prices came down," said API Chief Economist John C. Felmy.
"In short, markets worked, suppliers and consumers responded to market signals, and order in markets was maintained. This is a dramatic difference from supply shocks of the 1970s when markets were not allowed to function and consumers suffered in long gas lines," he told reporters during API's yearend statistical briefing.
Demand, as measured by total domestic products supplied, declined 1.1% to an average 20.56 million b/d in 2006 from 20.8 million b/d in 2005, according to API. Motor gasoline demand rose 0.8% to an average 9.24 million b/d in 2006 from nearly 9.16 million b/d in 2005.
Higher prices moderated gasoline demand growth, especially in 2006's first 6 months, noted Ronald J. Planting, information and analysis manager in API's statistics department.
"Demand appeared to strengthen in the second half with the drop in retail prices, beginning in August, of more than 80¢/gal. Still, for the year as a whole, demand growth for gasoline was less than half the longer-term historical rate," he said.
Blending of ethanol into gasoline reached a new peak of more than 5 billion gal, more than one-third more than in 2005, according to API. "Ethanol is now an ingredient in about 40% of all gasoline used in the US," Planting said.
Distillate demand
Distillate fuel oil demand grew 1.3% to an average 4.17 million b/d last year from nearly 4.12 million b/d in 2005, API said. Demand for off-highway distillate, with more than 500 ppm sulfur content, rose 5.9% year-to-year to 3.22 million b/d from 3.04 million b/d.
On-highway distillate demand, principally for diesel fuel, grew overall but changed as ultralow-sulfur diesel came onto the market partway through the year. Demand for ULSD containing less than 15 ppm of sulfur jumped to an average 1.45 million b/d in 2006 from 28,000 b/d in 2005. Demand for low-sulfur diesel, which it is replacing in many areas, dropped 11.8% to 949,000 b/d from 1.075 million b/d during the same period.
"The transition to 'clean diesel' went relatively smoothly, despite the challenges of distributing such a tightly specified product to the far reaches of the distribution system," said Planting. ULSD now accounts for roughly one fifth of all fuel used on all US highways, he added.
US refining capacity expanded for a 10th consecutive year as operable capacity increased 1% to an average 17.373 million b/d in 2006 from 17.196 million b/d in 2005. The average refinery utilization rate fell below 90% for the first time in years, but only because capacity grew as refiners produced record amounts of gasoline and distillate, Planting said.
Weak domestic demand limited crude oil import growth to 0.5% year-to-year (to 10.12 million b/d in 2006 from 10.07 million b/d in 2005). Product imports fell 1.9% overall year-to-year to 3.52 million b/d from nearly 3.59 million b/d, but imports of gasoline and blending components set new records. December's gasoline and components imports averaged 4.52 million b/d, 4.1% more than the 1.03 million b/d average in December 2005.
Crude oil production fell 1.1% to an average 5.12 million b/d in 2006 from nearly 5.18 million b/d in 2005, according to API. The decline came from a 12.1% drop in Alaskan output as depletion was aggravated by the summer's shutdown of Prudhoe Bay production due to gathering system leaks. Production in the Lower 48 states, meanwhile, grew year-to-year as recovery from 2005's hurricanes continued.
More challenges
While crude oil prices have fallen recently, 2007 could be another challenging year for the oil industry because world tensions, which influence markets, have not significantly decreased, Felmy said.
"The worst thing Congress could do in these challenging times would be to repeat the mistakes of some past energy policies. Yesterday, the House voted to impose new taxes on the oil and gas industry. These provisions will not help consumers," he said.
Calls for even more taxes could come out in the next few weeks as companies report fourth-quarter financial results, Felmy continued. "The numbers in those reports could be large because the companies are large, but when put in proper perspective, they are likely to be in line with other US industries," he said.
Felmy expressed concern over a few bills that have been introduced to combat alleged price gouging. "They are vaguely written, contain criminal penalties and may, unintentionally or otherwise, have the effect of price controls in restricting supplies," he said.
Contact Nick Snow at [email protected].
