API reports 3% drop in US oil demand during 2008's first six months

US oil demand dropped 3% in 2008's first six months as gasoline deliveries fell 1.7% in their first significant six-month decrease since 1991, the American Petroleum Institute reported.

Jul 25th, 2008

US oil demand dropped 3% in 2008's first six months as gasoline deliveries fell 1.7% in their first significant six-month decrease since 1991, the American Petroleum Institute reported.

Domestic petroleum demand had been faltering for three years, managing only to hold relatively steady, before deliveries for this year's first half averaged 20.08 million bbl a day, their lowest six-month level since early 2003, API said in its monthly statistical report for June.

"Higher pump prices and a slowing economy were undoubtedly factors. What was really remarkable was that we had the largest decline in internal consumption in 17 years to the lowest level since 2003," said Ron Planting, API's statistical director.

The decline did not extend to diesel fuel, where demand for ultra-low sulfur diesel jumped 16% year-to-year to an average 3.25 million b/d from 2.8 million b/d, according to API. It said that low sulfur diesel deliveries climbed 7.2% to an average 3.58 million b/d from 3.34 million b/d during the comparable 2007 period.

Planting said that refiners have supplied the US market with record diesel supplies. Domestic refiners have increased capacity and are making greater record amounts of diesel as a percentage of their total runs, he told reporters during a teleconference.

Diesel inventories

API's statistics showed that ULSD inventories at the end of June totaled 72.3 million bbl, 8.1% higher than their 66.9 million bbl a year earlier. Low sulfur diesel inventories grew 1.2% to 92.5 million bbl from 91.4 million bbl during the same period.

Gasoline inventories also grew year-to-year, increasing 3.6% year-to-year to 212.1 million bbl at the end of June from 204.8 million bbl a year earlier. Deliveries, which is how API measures demand, fell 1.7% during the first half to an average 9.06 million b/d from 9.21 million b/d during 2007's initial six months, it said.

"Gasoline has a greater share at the consumer level, which is more discretionary. Diesel users already have already figured out the shortest routes and ways to use fuel more efficiently, so they tend to be less flexible," Planting explained.

US retail gasoline prices averaged $4.113 cents/gal and retail diesel prices averaged $4.764 cents/gal, the US Energy Information Administration reported on July 14. Asked if motor fuel prices have reached a level which is having an impact on demand, API Chief Economist John C. Felmy replied, "Our data clearly show it in the United States.

"The issue here is more what's happening at the world level, particularly China, India and the Middle East. Those areas still have subsidies and price controls. In China, it's hard to see much happening before the Olympics but it could do something after. India is moving more toward a service economy that could reduce domestic pressure to continue subsidies. Producing countries in the Middle East also might take another look at subsidies," he continued.

Imports also drop

Slowing demand also influenced US petroleum imports, which sank to less than an average 13 million b/d, their lowest first-half level since 2003, API said. Crude oil imports, excluding purchases for the Strategic Petroleum Reserve, fell 2.5% year-to-year to an average 9.77 million b/d from 10.02 million b/d. Product imports dropped 9.9% to 3.19 million b/d from 3.54 million b/d during the same period.

Domestic crude oil and condensate production slid 2.2% during the first half to an average 5.09 million b/d from 5.21 million b/d in the comparable 2007 period, according to API. Natural gas liquids production rose 5.2% year-to-year to an average 1.83 million b/d from 1.74 million b/d, it said.

Crude oil production in the Lower 48 states fell 2.1% during the first half to an average 4.4 million b/d, despite year-to-year increases in some regions, API said. It indicated that Alaskan crude oil output for 2008's initial six months was down 6.4% to an average 725,000 b/d.

"It's not for lack of trying. Exploratory drilling is up 53% this year. Footage drilled is up 50%. Development drilling increased about 15% in the second quarter, not as much as exploratory drilling. The industry is trying hard, but if you keep going back to the same areas, you find less oil and gas. That's the key point of our request for more access," Felmy said.

Production would not increase immediately even if Congress decided to open more of the Outer Continental Shelf and authorize leasing on the Arctic National Wildlife Refuge's coastal plain, he conceded. "Companies have to do a host of environmental impact statements, get permits and lease tracts. If Congress were to make a statement that we're serious about going forward into new areas, there would be sufficient time to develop the infrastructure. Churchill once said the best time to plant a tree is 20 years ago, and the second best time is now," API's chief economist said.

Contact Nick Snow at nicks@pennwell.com

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