MSR: Sustained Petroleum Demand in October

Dean Foreman
Posted November 18, 2021

Historically, a combination of demand outpacing supply, low inventories and high imports has been a recipe for upward pressure on prices. API’s new Monthly Statistical Report (MSR), based on U.S. petroleum primary market data through October, reflected these directions as prices struck their highest levels since 2014 for crude oil and 2008 for natural gas.

Along with the economy, U.S. petroleum demand remained solid in October with the highest gasoline demand for the month since 2017 as well as record refining and petrochemical demand for other oils – intermediate products in refining and petrochemicals – for the month of October.

To meet demand, U.S. refining activity matched its October 2019 capacity utilization rate of 85.8%. Consequently, U.S. crude oil inventories (excluding the Strategic Petroleum Reserve) fell to their lowest levels for the month since 2014, and U.S. crude oil imports rose by 0.9 million barrels per day (mb/d) year-on-year.

In fact, U.S. total petroleum imports of 8.4 mb/d in Oct. exceeded a threshold of 8.0 mb/d for an eighth consecutive month after having been less than 8.0 mb/d over each of the prior eight months. These higher imports contributed to the U.S. being a petroleum net importer of 0.4 mb/d in October, and the U.S. Energy Information Administration (EIA) projects that the U.S. will remain a net importer for the year.  The U.S. return to petroleum net imports has meant taking barrels off of global markets, rather than adding to global supply, that in turn has corresponded with broadly higher prices for petroleum products and everything made from it that requires energy.  In the third quarter of 2021, the U.S. petroleum trade deficit was $12.8 billion (seasonally adjusted at annual rates), according the U.S. Bureau of Economic Analysis (BEA), which translates to an average of nearly $100 for every U.S. household.

Looking forward, one key uncertainty is the extent to which domestic drilling and production could respond. Although EIA does not publish its drilling rig assumptions, the agency apparently projects a strong drilling response to recent price increases, as evident by their projection that U.S. liquids production will expand by 1.4 mb/d between Nov. 2021 and Dec. 2022. In October, U.S. crude oil production rebounded to 11.4 mb/d following September figures that were impacted by prolonged Gulf Coast shut-ins after Hurricane Ida. Baker Hughes also reported 439 active oil-directed rigs in October, a 7.8% increase compared to October 2020 but 38% less than the 708 rigs that ran in October 2019. Unless drilling activity returns towards its 2019 levels, it could be difficult for U.S. production to grow to its 2019 levels as EIA projects.

As oil production has picked up, refining activity slipped but equaled its capacity utilization rate from October 2019. Specifically, U.S. refinery throughput was 15.6 mb/d in October, which was a seasonal decrease of 1.5% from September but implied a capacity utilization rate of 85.8% – the same as its level in Oct. 2019 and its average rate between 2011 and 2020.

Refining activity has historically related to its anticipation of demand, which in turn generally reflects economic activity. Leading indicators in October suggested industrial strength but historically low consumer sentiment, based on household surveys about their current circumstances and spending expectations.

API’s Distillate Economic Indicator^™ suggested that U.S. industrial production and broader economic activity have continued. The Institute for Supply Management’s manufacturing Purchasing Managers Index (TPMI) also suggested an expansion. 

By contrast, the University of Michigan’s consumer sentiment index fell by 6.8% month-on-month to a reading of 66.8 in October, its lowest level in a decade. According to UM’s index, increased consumer price inflation was the main concern with “higher prices for homes, vehicles, and durables reported more frequently than any other time in more than half a century.”  Since consumer spending, as measured by personal consumption expenditures, constitutes nearly 70% of U.S. GDP, it is a notable data point with consequential potential ramifications.

Therefore, the overall picture that emerged from the October data was one where demand growth eased at relatively solid levels, where supply had lagged but began to catch up with demand, yet refining activity and leading economic indicators sent mixed signals.

Other October 2021 MSR highlights:

• Distillate demand sustained at 4.0 mb/d.
• Jet fuel demand was stable at 1.5 mb/d.
• Marine shipping sustained residual fuel oil demand.
• Other oils’ demand of 5.3 mb/d a record for October.

Please see the latest API MSR for details, product-level analysis and data.