MSR: June Petroleum Demand Outpaces Supply, Imports Rise
Posted July 21, 2021
It’s great for the U.S. economy that, with urban re-openings and the onset of the summer driving season, petroleum demand returned to over 20 million barrels per day (mb/d) in June, according to API’s primary data presented in our latest Monthly Statistical Report (MSR).
However, domestic oil supplies have not been able keep pace, and consequently U.S. crude oil imports and consumer prices have suddenly risen, which ultimately could contribute to the list of expenses stressing household budgets, such as higher costs for housing, vehicles and many other goods and services.
One key learning from the 2020 COVID-19 recession and the recovery so far is that the relationship between economic activity and motor gasoline consumption in transportation remains closely intertwined. In fact, as we observed less seasonality than normal in consumption across months of the last year, it’s probably fair to say that most personal transportation since the pandemic has been essential as opposed to discretionary driving. In turn, this means that as prices rise it could be harder for households to make ends meet.
Importantly, crude oil is the top input to make gasoline, and crude oil prices have accounted for more than half of the cost per gallon, according to the U.S. Energy Information Administration (EIA). Another third of the cost is to refine and deliver the product, and the remaining 16% is state and federal motor fuel taxes that support roads and infrastructure. In the first quarter of 2021, states collected $12.3 billion dollars in motor fuels tax revenues that comprised 4.2% of total state tax revenues, according to the U.S. Census Bureau, so it’s important both to household budgets and maintaining our local roads, bridges and other transportation infrastructure.
State and federal motor fuels taxes are levied on a per gallon basis, rather than a percentage of the price, so if prices rise and households consume less, then tax revenues tend to decrease, which could increase calls among policymakers for tax increases.
The good news in that regard is that U.S. gasoline and total petroleum demand rose solidly in June, per API estimates. In particular, a resumption in urban activity drove gasoline demand to 9.4 mb/d and total U.S. petroleum demand of 20.6 million barrels per day (mb/d), which was its highest for any month since November 2019.
Refiners anticipated rising demand and upped their processing of crude oil to 16.5 mb/d, which led to the highest capacity utilization rate (91.4%) since December 2019.
All of this is to say that the economy, petroleum demand and the industry infrastructure supporting it have leaped into action.
By contrast, the supply of crude oil has risen to a lesser extent. U.S. crude oil production was 11.2 mb/d in June or 1.6 mb/d below its record level from November 2019. The reasons why supply has not yet rebounded strongly mainly relate to the industry’s financial fallout from the 2020 COVID-19 recession as well as workforce limitations with layoffs over the past year or so.
Consequently, with demand increases that have outpaced those of supply, the U.S. has returned to being a petroleum net importer this year and was so in June even as U.S. total petroleum exports of 8.9 mb/d achieved their highest level ever for the month of June, exceeding the former record of 8.6 mb/d in June 2019.
Moreover, leading indicators such as API’s Distillate Economic Indicator™ have remained positive. In fact, the Distillate Economic Indicator™ in June had its strongest positive reading on record since 2007.
The key question for every American household is whether domestic supply can rebound. The growth of U.S. oil and natural gas production throughout the U.S. energy revolution since 2010 has applied downward pressure on crude oil prices and has helped cushion U.S. consumers from global oil geopolitics.
Now more than ever we need cogent energy, infrastructure and trade policies that help enable U.S. energy production that’s essential for economic growth and prosperity.
Please see the latest API Monthly Statistical Report (MSR) for details and product-level analysis and data.
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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