U.S. oil demand slips in 2006, refinery capacity expands - API

Karen Matusic | 202.682.8118| matusick@api.org

WASHINGTON – Higher fuel prices and mild winter weather led to lower U.S. oil demand in 2006 even as economic growth bolstered diesel fuel use, API reported in its year-end Monthly Statistical Report.

While annual gasoline demand stagnated during the first half of the year, a drop of more than 80 cents a gallon starting in August appeared to reignite gasoline use in the second half.

“Our figures show modest increases for some products but a decline in overall oil demand as measured by product deliveries,” said Ron Planting, manager, information and analysis, for API. “That decline came as airlines continued to find additional ways to economize on fuel, and as industrial users and electric utilities substituted less expensive natural gas for heavy fuel oil.”

Though 2006 presented a number of challenges for the U.S. oil and natural gas industry and its customers, oil prices ended the year sharply below their peaks, and production of gasoline and distillate fuel oil rebounded sharply as the industry recovered from the lingering impact of the 2005 hurricanes.

 “Markets worked and suppliers and consumers responded to market signals,” said API Chief Economist John Felmy. “This is a dramatic difference from the supply shocks of the 1970s when markets were not allowed to function and consumers suffered sitting in long gas lines.”

The API statistics also showed that U.S. refineries and blenders produced record amounts of gasoline and distillate fuel oil in 2006 and refinery capacity expanded for the 10th straight year. Since 1996, U.S. refiners have expanded capacity by more than 2 million barrels per day, or 14 percent. The blending of ethanol into gasoline reached a new high of more than five billion gallons and production of new clean-burning ultra low-sulfur diesel fuel topped a record 2.6 million barrels per day by the fourth quarter.

U.S. crude production outside of Alaska registered its first increase in six years as hurricane-hit production in the Gulf Coast recovered and new production came onstream in other areas. A 12-percent slump in Alaskan production, mainly due to the shutdown of a major pipeline, pushed overall U.S. crude production down 1.1 percent.

The U.S. imported slightly less oil in 2006 than in the previous year. While crude oil imports edged up 0.5 percent for the year, product imports dropped 1.9 percent from 2005’s record high.