API Reports Capture Market Uncertainties
Posted March 19, 2020
As much as any other sector, global energy has felt the impact of the coronavirus (COVID-19) combined with lowering world demand and Russia and Saudi Arabia raising oil supply. We’ve seen crude oil prices cut in half within three months, which if sustained could rank among the most severe oil price downturns on record. Let’s discuss the most significant points for U.S. consumers, industry and the broader economy.
Details may be found in API’s latest Monthly Statistical Report, based on February U.S. petroleum data. Using weekly surveys of 90% of the natural gas and oil industry, we publish monthly data and analysis two months ahead of the U.S. Energy Information Administration (EIA).
Starting with demand, we began the year with U.S. petroleum demand falling in January, compared with December and January 2019. This included decreases in gasoline and diesel fuel deliveries, plus the evaporation of previous growth for jet fuel.
However, with the spread of COVID-19, the February data showed notable year-over-year (y/y) decreases for diesel (-9.9% y/y) and jet fuel (-5.2% y/y), but growth in motor gasoline as well as naphtha and gasoil used in refining and petrochemicals.
Gasoline is the single largest U.S. refined product by volume at 9.0 million barrels per day (mb/d) in February, and this was the highest demand for the month since 2007, suggesting many consumers chose to drive instead of fly in February.
At the same time, we saw refining throughput at a record for the month of February at 16.4 million barrels per day (mb/d), consistent with the strong naphtha and gasoil demand.
Moreover, U.S. petroleum exports also set a record high 9.2 mb/d for the month of February, including 3.6 mb/d of crude oil and 5.7 mb/d of refined products.
But the driver that swamped these factors was a sustained record for U.S. oil production – 13.0 mb/d –which spurred higher inventories and helped set the stage for the dramatic market events seen so far this month.
To be clear, the U.S. has gained five global market share percentage points in liquids production over the past five years, almost entirely at OPEC’s expense. Lower OPEC volumes, compounded by relatively low oil prices, brought markets to where they are now.
While all the attention is on low oil prices, the entire U.S. energy value chain also is being affected. With West Texas Intermediate (WTI) crude oil prices trading above international Brent crude oil, and the U.S. refining industry using majority of domestic crude, the relative advantage to WTI has been significantly reduced.
Here are some silver linings from API’s quarterly Industry Outlook that also has been released and reinforces market resilience:
- Low energy prices bolster household budgets and disproportionately benefit low-income households. Saving billions of dollars on energy directly helps improve the bottom line and expands disposable income for individuals, households, businesses and the broader economy.
- The new U.S. trade agreements with China, Mexico and Canada should boost U.S. energy exports, per EIA. Even if China buys less energy in the short-term, it should buy relatively more from the U.S. over time despite the Saudis’ most recent moves to be more competitive in the Asia Pacific region – evidenced by their deepest discounts going to that market.
- Third, IMO 2020 regulatory changes since Jan. 1, requiring the marine sector to reduce sulfur emissions by switching to lower sulfur fuels, have been smooth. For every headline leading up to Jan. 1 that said the sky would fall, the industry showed unparalleled flexibility to upgrade residual fuel oil.
- Last, but not least, natural gas generation rose to a record 38.2% of U.S. net electricity generation in 2019. This is notable because EIA, among others, projected last year that natural gas had gone about as far as it could in U.S. power generation, hampered by state mandates for wind and solar and selected support to sustain coal and nuclear plants. But coal lost another four percentage points share of U.S. net electricity generation in 2019, three points of which were earned by abundant and low-cost U.S. natural gas.
These are the highlights in a challenging time, and we’ll continue to monitor market conditions and their implications — and share those insights here on API Energy Tomorrow.
About The Author
Dr. R. Dean Foreman is API’s chief economist and an expert in the economics and markets for oil, natural gas and power with more than two decades of industry experience including ExxonMobil, Talisman Energy, Sasol, and Saudi Aramco in forecasting & market analysis, corporate strategic planning, and finance/risk management. He is known for knowledge of energy markets, applying advanced analytics to assess risk in these markets, and clearly and effectively communicating with management, policy makers and the media.
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