- Early estimates indicate that US oil demand grew by 2% last year, after several years of declining consumption.
- Although superficially consistent with recent GDP data, it's not yet clear whether this reflects a new trend or the results of non-recurring factors.
The Energy Information Agency (EIA) of the US Department of Energy won't issue final figures on 2013 consumption for a few more weeks. In the interim, the American Petroleum Institute (API) released its estimates for December and the Fourth Quarter, showing a 5.8% year-on-year uptick for the month and a 4.6% increase for the quarter, compared to the final quarter of 2012. API's Chief Economist John Felmy cited "continued progress in domestic manufacturing as well as the broader economy."
The US economy has shown unexpected strength recently but continues to disappoint a sizable majority of Americans, based on recent polling. The economy added just under 200,000 jobs per month last year, while total employment remains below its pre-recession peak. The government's first estimate at the end of January indicated that US gross domestic product grew by 3.2% in the fourth quarter of 2013, slower than the third quarter's relatively strong 4.1% pace. That puts full-year growth at 1.9%, or less than the 2.8% rate for the 2012 when US oil consumption shrank by 2% from the year before.
In any case, the linkage between economic growth and oil demand has weakened over time, falling by more than 60% since the mid-1970s and by 20% just since 2000. In fact, following the peak in US oil demand in 2005, estimated oil and natural gas consumption per dollar of real GDP has declined by an average of 1.7% per year, only a little less than the average of post-recession US GDP growth. So annual efficiency gains come close to offsetting the impact of economic growth on US oil demand.
Some of this is the result of specific efficiency improvements, such as the 1.0 mile-per-gallon increase in the fuel economy of vehicles sold in 2013, compared to the previous year. Tracking data from the University of Michigan indicate a 16% improvement in the fuel economy of new cars since the 2008 model year. Of course it takes time for the impact of new higher-mpg vehicles to make a dent in the demand of a fleet of roughly 235 million cars and light trucks. That's even true of plug-in electric vehicles that use no liquid fuel at all. With cumulative US sales of around 160,000, EVs are displacing less than 5,000 barrels per day (bpd) of gasoline at this point, in a 9 million bpd market.
Because the primary use of oil in the US is in transportation, with less than 1% of it going to generate electricity, we should look at indicators of transportation activity for signals about changes in oil demand. The Federal Highway Administration's tally of US vehicle miles traveled (VMT) for 2013 was just 0.6% higher than 2012, through November, and remained more than 2% below its 2007 peak, only slightly more than a decade ago. If there's been a recent shift in driving habits, it's either well-hidden or involves a switch back to putting more miles on less-efficient vehicles--countering the anecdotal trend of the last few years. In the longer term, VMT growth will face headwinds from the changes in driver demographics I described last August.
In seeking explanations for last year's higher demand, we also can't ignore one-time factors like weather. Heating-degree-day data for the northeast during the fourth quarter shows a nearly 10% increase compared to 4Q2012. That indicates more days when the average temperature was farther below 65 F, and presumably more consumption of heating fuel as a result--a trend that seems to be continuing this quarter.
Scrutinizing EIA's detailed data on product supplied reveals that around two-thirds of the roughly 300,000 bpd annual increase in demand in 2013 (through October) was in the categories of liquefied petroleum gases (LPG) and low-sulfur distillate, both used for heating. For that matter, much of the growth in LPG demand is being met from the processing of shale gas, rather than crude oil refining, so its inclusion as part of "oil demand" is somewhat misleading. Nor do growing US net exports of refined products, at around a million barrels per day last year according to API, have any bearing on this discussion, since they aren't included in the figures on which US consumption is gauged.
Another factor to consider when evaluating changes in oil demand is pricing. US retail gasoline prices averaged $0.11 per gallon less in 2013 than 2012, while retail diesel averaged around $0.05/gal. less. Those don't seem like big enough changes to affect demand, but the fourth quarter comparison is more dramatic, with gasoline and diesel $0.22 and $0.15/gal., respectively, less than a year earlier. That, together with a cooler fall, might help explain the fourth quarter bump in API's figures, which showed gasoline demand up by 3.7% year-on-year, and diesel up 5.3%.
Indications of a resurgence in US oil demand growth depend heavily on a single quarter's results, following a quarter of above-trend GDP growth--partially offset by efficiency gains that are expected to grow--and reinforced by cooler weather. While I can easily imagine that a return to robust US economic growth, combined with persistently weaker fuel prices, could put US oil consumption on an ascending path again, I'd like to see a few more data points before discerning larger implications for global oil demand and prices.
A different version of this posting was previously published on the website of Pacific Energy Development Corporation.
No comments:
Post a Comment