MSR: Petroleum Demand Reflects Economic Growth in September

Dean Foreman
Posted October 21, 2022

As oil markets grapple with tight supplies but also concerns for slowing economic growth, API’s latest Monthly Statistical Report (MSR), with primary data through September, highlights the following:

• U.S. petroleum demand (20.0 million barrels per day, mb/d) was within 1.4% of its highest level in five years, including the strongest demand for other oils (5.3 mb/d) for the month of September on record since 1965.
•  Highest natural gas liquids (NGL) production (6.0 mb/d) for September and second highest crude oil production (11.9 mb/d) for the month – though this still was 1.1 mb/d below the November 2019 peak production mark.
• Continued upwards trend of U.S. petroleum exports – crude oil and refined products – (10.4 mb/d) and net exports (1.9 mb/d) since the Russian invasion of Ukraine, reflecting the help American energy is providing to allies in Europe and Latin America, as well as support for domestic production.
• U.S. crude oil inventories in strategic petroleum reserve (SPR) fell to their lowest level since 1984, due to the Biden administration’s attempt to address domestic fuel prices through SPR drawdowns.

Petroleum demand at 20.0 mb/d and an average of 20.2 mb/d through the first three quarters of the year is historically solid.  In the past 14 years, the year-to-date average was higher only in 2018 and 2019.

The data showed that motor gasoline demand rose in urban areas but fell in rural ones, which was consistent with more driving likely having been related to essential commuting.  Along with the strongest seasonal (non-pandemic) September monthly change in motor gasoline in 40 years, it was likely back-to-work for many people as the summer driving season ended.

Marine shipping is another mode of transportation that reportedly dropped, yet the demand for residual fuel oil rose to its highest for the month since 2013.  Residual fuel oil can be blended to reduce its sulfur concentration, but IMO 2020 regulations have otherwise required ships using it as a marine bunker fuel to have scrubbers installed.  In a current global environment where the alternative of low-sulfur diesel fuel has been globally in short supply and therefore more expensive, the surprising resiliency of residual fuel oil shows markets and environmental regulations have worked well together.

A separate category that performed strongly was the deliveries of refinery and petrochemical liquid feedstocks – that is, naphtha, gasoil, and propane/propylene (“other oils”).  These amounted to 5.3 mb/d or 26.8% of total U.S. petroleum demand in September, the highest for the month of September on record since 1965. These reflected increases of 1.3% month on month (m/m) and 2.0% year on year (y/y) – and continued solid demand for films, packaging and medical plastics.

On exports, the U.S. continued to help allies as the Russian invasion of Ukraine moved into its seventh month – underscoring the importance of U.S. energy leadership. While American exports can help stabilize global markets, they can also spur production, job creation and economic growth here at home.

Turning to supply, the record high NGL production was indicative of natural gas production last month exceeding its pre-pandemic levels.  Meanwhile, crude oil production of 11.9 mb/d was at its second highest on record for the month of September.  However, it remained 1.1 mb/d less than its highest level, which occurred in November 2019, due to ongoing work force, supply chain, financial and energy policy headwinds.

Consequently, the low combined commercial inventories and strategic reserves of crude oil give a holistic picture of overall demand that has exceeded production – demand that historically has gone hand-in-hand with the economy.  Reinforcing this point, API’s Distillate Economic Indicator^™, which has historically correlated with the growth of U.S. industrial production and broader economic activities, also highlighted continued U.S. industrial production and broader economic growth in September.

All together these are reasons why September likely showed continued economic growth, and at a time when price inflation has eroded U.S. consumer sentiment it is a sign that the economy has remained resilient.

Let’s discuss some of the key charts and data from September.

U.S. petroleum demand, as measured by total domestic petroleum deliveries, was 20.0 mb/d in September. This reflected a seasonal decrease of 1.2% from August and was 0.9% y/y below the level of September 2021.  The 20.0 mb/d was also 1.4% less than that of September 2019, which was the top of the five-year range.  The fact that demand remained at 20.0 mb/d despite the highest oil prices since 2014 showed the essentiality of petroleum fuels to the economy.

U.S. petroleum exports – crude oil (3.9 mb/d) and refined products (6.5 mb/d) – of 10.4 mb/d in total for September continued an upward trend following the Russian invasion of Ukraine in February 2022. Compared with one year ago, U.S. petroleum exports rose by 2.6 mb/d y/y, while imports fell by 0.4 mb/d. Consequently, the U.S. was a petroleum net exporter of 1.9 mb/d in September. These are positive data points, reflecting increased U.S. role to provide our allies with the products they need to run their economies while also driving significant domestic benefits.

U.S. commercial crude oil inventories increased by 14.4 million barrels (3.4% m/m) from August and were up by 11.5 million barrels (2.7% y/y) versus September 2021 to 431.8 million barrels. By contrast, crude oil in the U.S. Strategic Petroleum Reserve (SPR) fell by 28.7 million barrels (9.2% m/m) to its lowest level since 1984 – and continued to fall through mid-October.

API’s Distillate Economic Indicator^™, which is based primarily on diesel/distillate supply, demand, and inventories, had a reading of +0.9 in September and a three-month average of +1.0 – steady from August – suggesting that U.S. industrial production and broader economic activity continued to grow.

Overall, the September data paint a picture of the U.S. and global economies in action, and none of that happens without abundant energy.

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