API Reports: Economy, Petroleum Demand Have Gained Momentum
Posted March 18, 2021
API’s latest industry outlook affirms the extent of recoveries in the U.S. and global economies, as well as rising demand for oil and natural gas.
For the past two quarters, API’s data and analysis have indicated these comebacks were underway, and this is visible in the March Monthly Statistical Report (MSR™), based on February data, and API’s quarterly Industry Outlook.
The recoveries come on the tailwind provided by nearly $20 trillion of economic stimulus around the world. We could be poised for the largest two-year oil demand increase (9.2 million barrels per day, mb/d) on record since 1950 and new record highs of demand (102.4 mb/d) by the fourth quarter of 2022.
As global markets have appeared increasingly buoyant, the key question for the U.S. is the extent to which it could participate in that recovery.
The U.S. Energy Information Administration’s (EIA) projections as of March 2021 are that 1) U.S. oil supply could increase by 3.0 mb/d between Q1 2021 and Q4 2022 to a new record-high of 20.8 m/d total U.S. liquids production, and 2) OPEC, Russia and the rest of the world could increase their production by nearly 6.0 mb/d of two-thirds of the total growth.
In any event, the most recent pace of industry capital investment – $42 billion in Q4 2020, compared with a real average of $86 billion per quarter between 2008 and 2019 – would likely need to rise to enable production to meet the expected record global demand growth by next year.
The divergence between this broadly anticipated recovery and the challenges for supply to keep pace, as we recently discussed in this article, plus the return of international oil prices to around $70 per barrel over the past week (their highest levels since May 2019) have renewed debates about whether the world has entered a commodities bull market.
For the United States, API’s latest MSR™ data showed that oil demand remained solid despite mid- and southwest U.S. winter emergency disruptions that clouded the readings on oil supply, trade and inventories beginning in mid-February.
February monthly highlights
- Total U.S. petroleum demand of 19.3 million barrels per day (mb/d) remained within 2.5% of its level from February 2020 despite ongoing effects of the COVID-19 pandemic.
- Refining and petrochemical demand for other oils – naphtha, gasoil, propane/propylene remained at record-high levels of the month of February (5.9 mb/d) and over 30% of total U.S. petroleum demand.
- Distillates/diesel fuel demand (4.1 mb/d) grew by 3.1% year on year (y/y) on solid trucking and industrial activities.
- Jet fuel deliveries reverted to 30.4% below their year-ago levels with continued weak air travel demand.
A key implication is that – for the second consecutive month and despite the pandemic as well as severe winter disruptions across the middle of the country – the U.S. economy was strong enough to require nearly the same quantity of petroleum products that it did a year ago, largely before COVID-19. The resounding growth in fuels for petrochemicals, freight transportation and winter heating almost completely offset the lower ones from lower driving and air travel in February.
Just as the fuel demand suggests that economic sectors have been performing differently this year, it also reinforced what we have continued to see in leading economic indicators showing an industrial and freight transportation recovery but consumer weakness. For example, the Institute for Supply Management’s Purchasing Managers Index (PMI) suggested strong U.S. manufacturing activity with growth among 16 of the 18 sectors surveyed. API’s economic indicator – the API DEI™ – also signaled an acceleration in industrial, freight transportation and broader economic activity – acceleration the DEI™ had accurately predicted for eight consecutive months as of February.
By contrast, the University of Michigan’s surveys of consumers indicated weaker sentiment in February (76.8), compared with January (79.0) and February 2020 (101.0). Notably, the surveys attributed the decrease entirely to households with incomes below $75,000, with the declines mainly concentrated in their expectations of future economic prospects. Importantly, this reinforces our discussions about the affordability of higher prices for energy, housing and vehicles, which as discussed in this article have affected American households differently by income segment.
Among other readings in the February MSR, the mid- and southwest U.S. winter emergency disruptions lowered U.S. production of crude oil and natural gas liquids; refinery capacity utilization; and exports of crude oil and refined products. Overall, these disruptions combined to raise crude oil and total inventories, while consumer demand was met by drawing down refined product inventories.
Overall, the views from API’s MSR™ and Industry Outlook jibe suggesting that the emerging economic and energy demand recoveries have gained traction.
For numerical details and further analysis, please see the latest MSR™ and Industry Outlook, available at no cost on the chief economists’ section of API’s website, linked here.
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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