API reports lower first-half US demand in response to recession

US petroleum product demand plunged to its lowest first-half level in more than a decade as the sluggish economy continued to squeeze oil consumption, the American Petroleum Institute reported.

Total product deliveries, which is how API measures demand, averaged 18.75 million bbl a day in 2009’s first six months, 5.8% below the comparable 2008 period’s 19.9 million b/d and nearly 10% below the peak of 20.75 million b/d in 2005’s first half, API said on July 16 as it released its latest monthly, quarterly, and six-month statistics.

“It clearly shows declines in demand, greater for some products than for the average. It reflects an economy that clearly is struggling right now. Demand is down, even though prices are significantly lower than they were a year ago,” API Chief Economist John C. Felmy told reporters during a teleconference.

He said that diesel fuel demand provides the most direct correlation with the sluggish economy, and could portend a decline in US gross domestic product for the first half when the US Department of Labor releases those figures in a few more weeks.

Deliveries of ultra-low sulfur diesel in the first half dropped 9.2% to an average 2.93 million b/d in 2009 from 3.22 million b/d in 2008, API’s statistics showed. Low-sulfur diesel deliveries were an average 3.24 million b/d in 2009’s first half, 6.6% less than the same 2008 period’s average 3.47 million b/d.

Lowest since 2003

Gasoline demand fell at a lower rate, but fell nevertheless to its lowest first-half level since 2003, officials of the petroleum trade association said. “Consumers’ incomes have declined, but not as drastically as the general economy,” observed API Statistics Manager Ronald Planting. Gasoline deliveries in 2008’s first half averaged 8.95 million b/d, 0.9% less than 9.04 million b/d in 2009’s first six months, API’s statistics indicated.

They also showed that first-half US jet fuel demand plunged 12.8% year-to-year to 1.38 million b/d in 2009 from 1.59 million b/d in 2008, while residual fuel oil deliveries dropped 9.1% to an average 587,000 b/d from 646,000 b/d during the same period. Planting said that the lower resid demand reflected reduced industrial activity, “although one has to be careful here because of resid’s relationship to natural gas prices, which are depressed.”

US crude oil and condensate production, meanwhile, grew 3.4% to an average 5.29 million b/d in 2009’s first half from 5.12 million b/d during the comparable period a year earlier, according to API. “New fields came on line offshore in the Gulf of Mexico and onshore in the Bakken Shale of North Dakota,” said Felmy. Production grew despite a more than 12% drop in Alaska during June related to maintenance of the Trans-Alaska Pipeline System, API noted.

It said that domestic crude inventories as of June 30 were 348.7 million bbl, 17.9% more than the 295.8 million bbl a year earlier. “We’re definitely above the five-year average of about 322 million barrels,” Felmy said.

Product inventories also increased year-to-year, with gasoline 0.6% higher at 212.1 million bbl, jet fuel up 8.7% to 43.3 million bbl, ultra-low sulfur diesel 27.2% higher at 94 million bbl, and low-sulfur diesel up 22% to 114.3 million bbl, the statistics showed.

Refining results

They also indicated that crude oil runs at US refineries during the first half fell 3.9% year-to-year to an average 14.3 million b/d in 2009 from 14.9 million b/d in 2008, while input to crude distillation units declined 4.2% to 14.6 million b/d from 15.2 million b/d. Operable capacity grew 0.4% year-to-year to an average 17.7 million b/d from 17.6 million b/d.

API noted that while US refining capacity utilization in the first half was down year-to-year to 82.4% from 86.4%, it was still above the average for all domestic industries, which the Federal Reserve Board put at 64.7% during June. “If you look at the yields for gasoline and distillate, they’ve both been up sharply,” Felmy said.

“The refinery capacity situation is very challenging because of more efficient vehicles, requirements to use more ethanol, and imports. But there are other, equally challenging policy issues, including a whole host of tax issues and how the Waxman-Markey bill handles domestic refiners, which would put them at a competitive disadvantage to foreign refiners,” he continued. “A lot of the discussions we’ve heard this year are that the moves would reduce crude oil imports, but they could increase product imports.”

Higher distillate inventories reflect some refiners’ shift of capacity toward more diesel, Felmy suggested. “You’ve also got refinery upgrades to handle Canadian oil sands. There are a lot of moving parts in the equation. A couple of capacity expansion projects are going forward. Others are still being considered,” he said.

Contact Nick Snow at[email protected]