Fitch: Regs limit demand response to price
Regulations meant to trim the use of oil products in the US will distort fuel-market adjustments to falling oil prices by putting the burden on supply, warns Fitch Ratings, New York.
The credit-rating and research firm cites growing requirements for renewable fuels, tighter corporate average fuel economy standards, and state and federal regulation of greenhouse gases.
The firm notes an Energy Information Administration report that weekly total gasoline consumption at the end of December rose to about 9.5 million b/d, 3.3% above its 5-year high and 3.7% above its year-earlier level.
Over time, however, regulations will restrain consumption regardless of price and raise costs for US refinery products, especially gasoline.
“The limited ability of the US to balance global oil markets through changes in demand suggests that the oil market will likely require a more significant adjustment on the supply side to recover from its recent lows,” Fitch Ratings says. “This dovetails with Fitch’s view that the recent drop in oil prices is mostly a supply-driven issue that will require a significant supply response to come back into balance.”