U.S. Petroleum Markets Resilient Amid Weaker Economic Indicators in February

Faustine Jean-Louis
Posted March 31, 2023

API’s latest Monthly Statistical Report (MSR™), with primary data through February, recorded petroleum demand of 19.8 million barrels per day (Mb/d) – its second highest for the month since 2020 – a rebound in oil production, and record level exports, with reductions in inventories and domestic refining activities when compared to January 2023.

Added together, these indicate that U.S. petroleum supply sustained a healthy pull for domestic product(s) and exports in February amid seasonal configurations.

MSR™ highlights:

• Despite weak readings from several economic indicators, U.S. petroleum demand added 45,000 barrels per day month-over-month (m/m).
• Crude oil production rose by an estimated 64,000 barrels per day m/m in February to 12.3 Mb/d – noteworthy because that’s 600,000 barrels per day more than February 2019, before the pandemic.
• Refinery throughput of crude oil (15.5 Mb/d) and a decline in refinery capacity utilization rate (85.8%), resulting from reduced fuel demand and seasonal maintenance.
• U.S. petroleum exports increased 400,000 barrels per day in February over January to 10.0 Mb/d. That made the U.S. a petroleum net exporter, moving net exports to the highest level ever for the month of February and the second-highest level for all months on record since 1947. Exports, as we’ve noted in the past, also help generate domestic benefits, including jobs and economic growth.

The rebound in U.S. oil production likely resulted from increased productivity, which exceeded legacy production declines in several key basins. U.S. commercial crude inventories (excluding Strategic Petroleum Reserves) climbed to levels not seen since April 2021 and showed a continued resiliency in U.S. petroleum supply – even as prices fell for the U.S. oil benchmark to the upper $70 per barrel range. For consumers, resilient U.S. petroleum supply can help contribute toward more stable household spending for transportation and other household goods despite continuing inflation.

Notably, the lower prices came with a decrease in rig counts. The day-weighted average of active oil and gas-directed rigs from Baker Hughes showed 14 fewer U.S. rigs operating in February compared to January. And though producers continue to drill, there were no changes in the number of well completions month-over-month. Nonetheless, productivity gains across the basins – including the Permian, Anadarko and Bakken – added approximately 64,000 barrels per day more to production. This pick-up in domestic crude oil production most likely reflects strong productivity by existing wells, while new well additions assist in off-setting natural production declines.

Typically, during this time of the year, an increase in crude inventories comes with either a softening in fuel demand or refineries shutting down for maintenance. Both were reported in February. This prompted less throughput into refineries and a ramping down of utilized capacity. Throughput fell 0.1% m/m and 2.7% y/y (0.4 Mb/d) to its lowest point for any month since March 2021, and refined product stocks inched downward for the month as well while remaining 7.8% above last year’s level.

In any case, the need for more drilling in the face of naturally occurring resource depletion is critical to household energy affordability and energy security.

Despite general economic outlooks spelling an overall slowdown and the overall index measuring consumer sentiment worsening, petroleum demand (19.8 Mb/d) pushed through by adding 45,000 barrels per day, albeit at the smallest month-over-month increase for any month since January 2021, and was mostly a result of an increase in both urban and rural driving.

The month-over-month growth in total demand is mostly explained by motor gasoline demand of 8.6 Mb/d, which is the largest component and increased by 3.1% y/y in February – perhaps the leading edge of increased demand that goes with the annual driving season. Within motor gasoline demand, deliveries of reformulated-type gasoline (consumed primarily in urban areas) rose by 3.8% m/m and 5.8% y/y to 2.9 Mb/d. By contrast, conventional gasoline (consumed mainly in rural areas) deliveries decreased by 5.4% m/m to 5.8 Mb/d. 

Reduced consumption of distillates (3.7 Mb/d), residual fuel (0.3 Mb/d) and other oils (5.5 Mb/d) contributed to the year-over-year declines in total petroleum for February. In particular, the decline in distillate fuel demand places emphasis on the significant demand and supply imbalances within that segment of the refined products market.

U.S. refinery and petrochemical liquid feedstocks – that is, naphtha, gasoil, and propane/propylene, with demand of 5.7 Mb/d in February – made up 27.8% of U.S. petroleum demand. This was 1.0% less than levels in February 2022 and 3.9% less than levels in January 2023. Though a slow-down in U.S. manufacturing underlies these data, petrochemical demand remained resilient.

Meanwhile, U.S. crude oil production (12.3 Mb/d) was up by almost 1.1 Mb/d compared to February 2022. This number averaged with January production exceeds any January-February production period of the last five years and is on par with the Jan-Feb production period of 2019. The U.S. Energy Information Administration is forecasting a new record for this year of 12.4 Mb/d, which surpasses the 2019 pre-Covid record of 12.3 Mb/d. Additionally, natural gas liquids (NGL) production of 5.9 Mb/d in January – its highest for the month on record since 1973 – was 8.6% higher than February 2022. The growth in NGL production is mostly driven by the increasing domestic and export demand for petrochemical feedstock.

Despite the current undertones of supply, the U.S. remained a petroleum net exporter of 1.1 Mb/d, and this highlights the continued importance that U.S. exports play during a time of both economic and geopolitical uncertainty – contributing to downward pressure on global and U.S. crude oil and petroleum product costs while also generating benefits here at home in terms of jobs and economic activity associated with energy production.

In February, U.S. petroleum exports picked up and were at their second highest level for the month on record since 1947. U.S. petroleum exports of 10.0 Mb/d – including 4.2 Mb/d of crude oil and 5.8 Mb/d of refined products – in February increased by 0.4 Mb/d m/m from January. At the same time, U.S. petroleum imports rose by only 28,000 barrels a day m/m in February.

U.S. crude oil inventory in February of 478.8 million barrels in February grew by 5.7% m/m (26.0 million barrels) from January and by 17.0% y/y (69.7 million barrels) from 409.1 million barrels in February 2022. This was the largest monthly rise in inventories for any given month since April 2020. Total domestic gasoline stocks decreased by 29.9 million barrels to 206.9 million barrels and distillates stocks decreased by 594,000 barrels to 118.5 million bbl.

Refinery throughput fell by 0.1% m/m (13,000 b/d) and by 2.7% y/y (0.4 Mb/d) to its lowest point for any month since March 2021. Per the International Energy Agency, with “U.S. activity still recovering from the outages during the Arctic freeze, a further decline is expected in February on scheduled maintenance.”