No drop in oil demand yet

Well it does not appear that the message about oil supplies is causing much change as yet in people's demand. Looking through the Weekly Petroleum Data Summary from DOE there are a couple of things to note.
U.S. crude oil refinery inputs averaged nearly 16.5 million barrels per day during the week ending July 1, up 194,000 barrels per day from the previous week's average and the highest weekly average ever. Refineries operated at 98.1 percent of their operable capacity last week, the highest weekly utilization rate since the week ending January 1, 1999. Gasoline production increased some, averaging over 9.2 million barrels per day, and the highest weekly average ever. Distillate fuel production increased substantially, averaging 4.5 million barrels per day and the highest weekly average ever recorded.

U.S. crude oil imports averaged over 10.2 million barrels per day last week, down 752,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.5 million barrels per day, a decrease of 9,000 barrels per day from the comparable four weeks last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged over 1.0 million barrels per day, while distillate fuel imports averaged 322,000 barrels per day.
And on the demand side
Total product supplied over the last four-week period has averaged nearly 20.8 million barrels per day, or 2.2 percent more than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.5 million barrels per day, or 2.7 percent above the same period last year, with last week's average of over 9.7 million barrels the highest weekly average ever. Distillate fuel demand has averaged 4.1 million barrels per day over the last four weeks, or 6.0 percent above the same period last year. Kerosene-type jet fuel demand is up 5.5 percent over the last four weeks compared to the same four-week period last year.
In other words we are seeing the same sort of growth figures in demand that we saw last year, and slightly above the numbers that had been predicted earlier in the year. The price increases have not had any impact so far on demand over here. In the poorer countries such as Indonesia this is not the case. In those places, where the government has been subsidizing fuel costs the impact can only be expected to worsen as the year draws on.

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Interesting stuff...thanks. I'm surprised we haven't seen atleast a slowdown in the rate of growth. I can see how the increased cost of gasoline could be overlooked by most consumers who spend far more on entertainment and eating out, but it does have a major impact on the low income population.

If anyone knows of some good research / lit reviews on the elasticity of gasoline demand, I would be interested in taking a look.

I think the main effect of high oil prices on growth is on business expenses such as transportation, raw materials, etc, not on consumer expenditures for gas. I saw a study recently (can't remember source) that said that the effect (oil price impact on GDP) is definitely there, only it lags high prices by three to six months because businesses in which oil prices are mostly an indirect cost (which is most of them) don't start adjusting their behavior until the impact starts showing up in profitability, which takes a quarter or two. When that happens, though, watch out!

Well, it's going to be difficult for refineries to keep up 98% utilization for long, too.

I am a bit suprised that distillate production is as high as it is and appears to be the fastest growing segment. Traditionally, there is a trade off between a refineries ability to produce distillate and gasoline. In the winter facilities shift to distillate for heating purposes, and the summer driving season is where gas demand is the strongest. I would guess that it is far to early to be preparing for winter production orientations. So, I would suppose the heavy distillate use is for trucking, which would indicate no slow down on that front. Could it reflect a reduction of supply quality, which leads to more heavy product? If so gasloine prices should be divurging from diesel prices. Does anyone else know anything about this?

Tim - I think utilization figures are not always perfect and some facilities can run for periods at 102 or 103% of utilization. If the 100% figure takes maintenance into account, there is no real reason to think that refineries can't run at these levels forever, or at least for all of high demand periods. As profitability is determined by refining margins and capacity utilization, they will be very happy doing it. However, it is clear that a cieling on US production is not far off.

I think the US has mostly run out of debottlenecking, which was the source of all previous US increases since the 70s. As far as I know, no new greenfield projects are planned. So at 2.7% growth per year, next summer may see the end of the ability to meet demand through increased production. The only alternatives that I see are imports (which are limited), price increases until the demand is reduced to match the 100% capacity level or substitutes such as biodiesel.

Sorry. That last one (Anonymous at 4:25 pm) was me. I may try to pull together some data on this later.

Each week I update a spreadsheet and chart which compares actual vs DOE estimates for 2005.

Last week's data and the demand growth chart/total product supplied graph: http://www.trendvue.com/doc/11509

If one uses a 52 week (I have 55 weeks of data in the comparison) rolling comparison, gasoline is off 27.73% from projections but distillate demand is off the charts up 135.89 over projections (4.48% growth vs 1.90% est) and jet fuel is up 15.26%.

There's some reason to believe demand growth is accelerating: Since mid-may the weekly raw demand data in every category is up consistantly over the past year - eyeballing the numbers gasoline approx 2.5% higher than last year; distillates up 6%+, jet fuel up 4%+.

Gasoline prices jumped 10c/gallon in the past week. Question: What's the reason for the about 4 to 5% increase at the pump? Here in Colorado, it's now about $2.25/gallon with about $2.15 last week.

A few points:

Yes, it does indeed take a while for the higher cost of oil and gasoline to work its way through the economy.

I think we're in a gray zone of impact, with respect to economic classes. The lower income groups got hit the hardest, but they tend to have the least responsive demand--they burn what gas they have to, and they often can't afford to make lifestyle or vehicle changes to reduce consumption, at least in the short run.

Most of the people who can afford to make such changes are, by definition, higher income and less impacted than the lower income group by the price rise so far, so the overwhelming majority of them haven't made any major changes to their consumption of gasoline (although some have curbed other spending to account for the higher gasoline cost). Some have downsized vehicles or bought hybrids, but not enough to make a big difference yet.

We're headed for a tipping point, where the middle class and upper middle class groups really start to feel the pinch of higher gasoline prices. That's when the resale value of SUV's and pickup trucks will likely plummet, as very few people will want to buy them, and many who already own one will want to dump it.

Strictly speaking, we can't be sure how much effect higher prices have had on direct gasoline consumption--what would the consumption have been had gasoline been well below $2US/gallon all along? (I'm not being a smartass, just pointing out that if demand grew, even with the higher prices, then it very likely would have grown even more at lower prices, meaning the price really did constrain demand, at least a little.)

Well, I made another chart, this time of overall energy consumption (rather than specifically oil consumption) by sector. I did it in response to an National Resources Defense Council article I found today. The post and image are here.

Mike Watkins,

Thanks for the data. I just looked at your site and will spend a bit more time there later. I also charted diesel and gas prces and found that the spread has virtually closed, which is consistent with your diesel & distillate growth figures.

Why do you think distillate growth is so great in early July?

We may be exporting some of this to Europe, they tend to use more of it over there and with the North Sea production dropping, they have to make it up from somewhere. Earlier this year I posted the source that mentioned that it was coming from us. The EIA reference shows we are exporting about 1.13 mbd of products, but it doesn't define what they are in detail (see their note 5).

Further to increasing demand:

United rehires 600 flight attendants

CHICAGO (Reuters) - United Airlines has rehired 600 flight attendants and expects to bring back about 850 more later this year as increased passenger demand means more planes are flying near capacity, a company spokeswoman said Sunday.

US economic growth remains fairly robust; if higher energy prices are holding it back, it hasn't been nearly enough to slow growth sufficient to curb increasing demand.

On the other hand, other economies may be impacted first. South Korea:

Government Considering Measures to Curb Oil Consumption

Jordan I read this weekend is lifting subsidies on oil - raising prices to the populace.

Also read this weekend commentary in the Phillipines re a US DOE suggestion that the country start its own Strategic Petroleum Reserve.

China will be filling its SPR soon, if they haven't started already.

demand + fear = more demand...

I suspect China has been filling a reserve for sometime, although I don't have much evidence. Even counting diesel for power and rapid auto growth, it is hard to explain how much oil the country is taking in.

I don't think the Phillipines has the money to create its own Strategic Petroleum Reserve. I'm not even sure Europe, Japan or Korea have much in the way of publicly funded reserves, although I may be wrong. I believe they count private sector resrves towards their total IEA committments.

That crude oil import decrease is huge percentage-wise. That looks strange.

Speaking from a non-expert point of view, I think the current demand pattern looks like this: The cost of gasoline is not so high that people can not fill the tank (compare to European costs for a liter). But the rising cost of fuel sends the message to many people in the states that perhaps now is the time to make that big vacation, before the costs go higher, thus the increase in demand.

I'm not sure about the increase in air traffic, is it that the prices have not effected the ticket cost yet, or do we have so much money that 30% increases are not even slowing our travel plans?

China Demand - up but not soaring as it did last year. Yet still they have blackouts, power shortages, supply constraints. Is their growth slowing because of availability (and therefore price) or need? We've got to assume its not because of lack of demand (need) so the chicken and egg question is, are they not importing ever more because of high prices or not importing ever more because of scarcity of supply.

China H1 crude oil imports up 3.9 pct at 63.42 mln tons - UPDATE
07.11.2005, 01:20 AM
http://www.forbes.com/home/feeds/afx/2005/07/11/afx2130585.html

BEIJING (AFX) - China's crude oil imports in the first half rose 3.9 pct year-on-year to 63.42 mln tons, the Xinhua news agency reported, citing customs figures.

In terms of value, crude oil imports for the first six months were up 42.2 pct from a year earlier at 15.17 bln usd, the official news agency said.

Imports of refined oil fell 21 pct year-on-year to 15.7 mln tons. However, in terms of value, refined oil imports were up 0.8 pct to 4.5 bln usd on the back of surging prices, Xinhua said.

China's strong economic growth has triggered huge energy demand and oil imports rose rapidly. Last year, the mainland imported 122.72 mln tons of crude oil, up 34.8 pct over 2003.

Related news:

Gulf tanker rates spike on Aug demand
http://persia2.asia1.com.sg/NASApp/RegAuth2/en/BTSLogin.jsp?Rem_Me=&lang=en&usertype=1&svc=com|bts&code=2&dest=http://business-times.asia1.com.sg/sub/shippingtimes/story/0,4574,161845,00.html?uid=&pwd=&ssID=9603051ab9e24959&remme_callback=1&url=business-times.asia1.com.sg/sub/shippingtimes/story/0,4574,161845,00.html

.. and ..

Nigeria-China Sign $800m Crude Oil Sale Agreement
http://www.thisdayonline.com/nview.php?id=22285
deal amounting to $800 million (about N105.6 billion) per year.
The agreement, which is subject to yearly renewal, will see the Chinese government buying Nigeria's crude oil to the tune of 30,000 barrels daily for a period of five years.
Trade exchanges between China and Nigeria in 2004 has been put at over $2 billion. China is executing the crude oil purchase deal through its national oil firm, Petro-China International (London) along with its Nigerian partner, Equinox Energy Limited.
Last weekendÂ’s trade agreement is about the second of such business deals the Chinese firm will be striking with the Nigerian National Petroleum Corporation (NNPC).

I'm just a simpleton. I just figured they were raising gas prices for the 4th of July holiday. Now y'all have to give me all these data bits to digest. Thanks...

Just wondering about pump prices -- one might think that the price paid at the pump would reflect the price paid for the crude oil which was brought here and then refined into gasoline. Is that correct? So then the time it takes for the pump price to refelct the crude price change would be whatever time it takes to refine and deliver out to filling stations? Or is the price at the filling station completely decoupled from the actual cost of the crude oil, and based instead on other factors?

Part of the problem with correlating crude prices with pump prices is the delay between when it is purchased, the maybe 40 days for it to reach a US refinery, and then the time it takes to get to the pump.

In regard to tanker rates, there are about 40 VLCC's sitting around the Middle East Gulf (MEG) region waiting for jobs, there have been about 120 or so "fixtures" (as they are called) placed for July, the highest since January, with it being unlikely that the total for the month will be more than say 135. In regard to Nigeria there was a short time that there were not enough tankers around but when word got out it took less than a week for that situation to be "corrected", since there are more than enough tankers now to match demand.

US import demand probably fell because our Strategic Petroleum Reserve (SPR) is about full.