Fuel switching take edge off U.S. oil demand

WASHINGTON – A sharp drop in residual fuel oil use pushed overall U.S. oil demand down in November compared to year-ago levels though demand for other refined products remained buoyant, according to API, the national trade association of the oil and natural gas industry.

In its Monthly Statistical Report covering November 2006, API attributed the 500,000-barrel-per-day decline in residual fuel oil demand to the fact that November 2005 demand was boosted by a high level of fuel switching by utilities that substituted costly natural gas with heavy fuel oil. Natural gas prices have fallen sharply from year-ago levels when domestic supplies of natural gas were hampered by the lingering impact of Hurricane Rita and Katrina.

U.S. gasoline demand growth slowed in the month – registering an increase of just 0.2 percent over November 2006 levels – in line with higher pump prices. Nonetheless, gasoline deliveries, a proxy for demand, over the past three months have averaged 3 percent higher than a year-ago, contrasting with much weaker growth earlier in the year.

“The unusual jump in gasoline demand in October turned out to be temporary,” said Ron Planting, manager, statistical information and analysis, for API.  “But the decline in retail prices has still apparently given consumers a little more flexibility in making their travel plans.”

Stockpiles of crude and distillate, including heating oil, stood well above their five-year average for the month despite a drop in imports and refinery activity. Crude inventories stood 12 percent over the historical five-year average and their highest November level since 1998. Distillate stocks closed at their highest November level since 1999.

For the first time in five months, gasoline inventories fell below-year ago levels and ended November about 3 percent below the five-year average. Kerosine jet fuel stocks fell to their lowest level since March 2005 and stand about 7 percent below their five-year average.

API’s figures show production of ultra-low sulfur diesel fuel – the new, cleaner fuel required for on-highway use this year – reached a new record of nearly 2.8 million barrels per day in November, up 3.9 percent from October levels. For the month, deliveries of clean diesel averaged 2.71 million barrels per day.

Crude and refined products imports fell to their lowest levels in more than two years. Crude  imports declined by nearly 7 percent from a year earlier to 9.8 million barrels per day while product imports plunged by nearly a quarter to less than 3 million barrels per day.

Karen Matusic | 202.682.8118|matusick@api.org