2009 US Petroleum Trends

The American Petroleum Institute (API) released its annual oil statistics for 2009 to the press yesterday afternoon, and I participated in their media teleconference this morning covering the results. The numbers reveal some interesting shifts, and they provide another useful barometer on the state of the US economy, for which oil is still the largest energy input by a wide margin. Total petroleum and refined products deliveries, reflecting aggregate demand, continued their downward trend last year, averaging 4% below 2008 levels, but interestingly were only down 1.8% in the fourth quarter, compared to 4Q08, with December actually showing a slight uptick vs. December '08. Here are a few of the underlying details that caught my eye, and my reactions to them:

• Gasoline bucked the overall downward trend in product demand. Despite prices that recovered steadily throughout the year from their late-2008 lows and surpassed their year-earlier levels in the fourth quarter, gasoline demand posted a 0.3% increase vs. 2008, with 4Q09 showing a 1.1% rise compared to 4Q08 and an even stronger finish in December. This is entirely consistent with the observed reversal of the decline in vehicle miles traveled, which still dominates improvements in fuel economy, despite the Cash for Clunkers uplift.
• In contrast, diesel demand remains very weak, with the low-sulfur and ultra-low-sulfur diesel deliveries that correlate with goods shipments and overall economic activity running at 7.5% below 2008, with little or no improvement in 4Q09. (Are the results of recent gains in economic activity mainly replenishing depleted inventories?)
• US refineries operated at less than 83% of their nameplate capacity for the year and fell below 80% in December. The poor margins this creates are buffeting oil company earnings but buffering consumers from the full impact of recent increases in oil prices. If utilization stays at such low levels, a major shakeout in refining could be coming, beyond the refinery closures we've already seen. This will be exacerbated by the completion of major refinery expansions on the Gulf Coast, including Marathon's Garyville, LA refinery project starting up now and the more-than-doubling of the former Texaco Port Arthur refinery, now owned by a joint venture of Shell and Saudi Refining, due within a few years.
• US imports of crude oil and petroleum products fell by over 9%, with products taking the biggest hit, proportionally, falling by half a million barrels per day. This is good news and bad news, since much of it is the result of the weaker economy.
• Happily, roughly a third of the drop in imports was attributable to higher US production of crude oil and the liquids accompanying higher natural gas output--a byproduct of the shale gas boom. As API's Chief Economist John Felmy pointed out in the call, that was partly the result of a year without major hurricanes in the Gulf of Mexico. However, it also validates the time lags involved in bringing on new production triggered by the spike in oil prices that began in 2003-4.
• The mix of our foreign oil suppliers is also shifting, with lower imports from Mexico--production there is collapsing--and Venezuela, two of the mainstays of our supplies over the last several decades. Despite this, imports from the Persian Gulf made up just 17.5% of the total through October, compared to 22.5% from Canada. And although they didn't make the top 10 list this year, imports from Brazil are coming on strong. This is a testament to that country's policies for developing its vast new resources. Look for Brazil to enter the top 10 list this year, as Mexican output continues to drop and Brazil surges.

I'm sure I missed some other nuances, and I regret not being able to provide links to the original figures, since access to the data requires a subscription. I'm sure I'll be commenting on many of these trends at greater length and referring to public data from the Energy Information Agency of the Department of Energy, as they become available.