Weekly Petroleum Analysis

As I predicted earlier, demand for petroleum products continues to decline in the U.S. Here is an excerpt from the latest EIA release (Wednesday 5/20/09).

"Total products supplied over the last four-week period has averaged nearly 18.3 million barrels per day, down by 7.6 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged about 9.1 million barrels per day, down by 1.2 percent from the same period last year. 

Distillate fuel demand has averaged 3.5 million barrels per day over the last four weeks, down by 12.0 percent from the same period last year. Jet fuel demand is 9.0 percent lower over the last four weeks compared to the same four-week period last year."

We are nearly into the summer driving season, with Memorial Day weekend only 2 days away.  Last summer (2008) saw declines in gasoline use due to very high prices, and this year sees an additional decline due to economic recession. 

These statistics have many ramifications for the economy, jobs, housing, tax revenues, demographics, and more.  The global oil market watches these figures closely, because the U.S. consumes roughly one-fourth of all petroleum produced in the world.  The price of oil is affected, at least partly, by the U.S. demand.  

Oil refiners are watching these numbers, too.  Of the roughly 142 refineries in the U.S., obviously some are more profitable than others.  The least profitable refineries are the ones most affected by low product demand.  Decisions to remain in operation, or to shut down are greatly impacted by these numbers.  

Decisions by refiners to invest in capacity expansions or processing upgrades are also affected by these numbers.  There are a few major expansion projects underway, but the completion dates are under review.  With a surplus of refining capacity in the U.S. due to decreased demand, product imports are reduced, thereby affecting foreign refineries.  

Last year (2008), saw diesel demand remain strong but now diesel has declined along with gasoline.  Jet fuel demand decline is reflected in reduced airline ticket sales, as fewer people are flying.  That should provide some relief to the long lines at airport security checkpoints.  

The government's radical policies of flooding the economy with printed dollars, dictating which companies survive and which fail, draconian new CAFE (car mileage) standards that will require massive investments in new plant - yet questionable sales, and CO2 regulations that further strangle the economy (as currently the law in California, perhaps soon to be the U.S. law), all contribute to the further decline in the economy.  One need only look at the falling demand for three products to know the government's policies are failures:  

Gasoline demand is down, even over last year which was already down; 

Distillate demand(primarily diesel fuel used in commerce, e.g. trucks) is down;  and 

Jet fuel demand is down.  

No matter how much spin or squirming or flat out lies the government spews forth, these three products tell the tale.  

There is no economic recovery underway in the U.S.   If and when one begins, these numbers will resume their upward climb.

Roger E. Sowell, Esq.