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Energy Tomorrow Blog

Making Sense of Demand vs. Supply, Key Factors Affecting Production

oil and natural gas production  supply  demand  investments  economic recovery 

Dean Foreman

Dean Foreman
Posted October 7, 2021

The fundamentals of natural gas demand outpacing supply have driven prices to their highest for the season since 2008, and some analysts expect a natural gas supply crunch with potentially wide impacts this winter – including potential market tightening that could significantly affect household budgets and perhaps could risk physical hardship for some.

In such a context, many Americans may have a hard time figuring out what’s happening and how it affects them: If natural gas prices have soared, why hasn’t production risen more quickly to meet post-pandemic energy demand and moderate the conditions driving up costs? And another one: Why is the U.S. still exporting liquefied natural gas (LNG)? 

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Divergent Times for U.S. Oil and Natural Gas Demand, Supply

monthly-stats-report  supply  oil demand  imports 

Dean Foreman

Dean Foreman
Posted September 22, 2021

Economics and energy market data for the third quarter of 2021 were marked by divergences. That’s the main thrust of API’s quarterly Industry Outlook for Q3 2021 and Monthly Statistical Report (MSR) with primary data for August. 

Demand for oil and natural gas has risen strongly along with the economic recovery, as we discussed here. At the same time, global oil and natural gas investments have fallen to record lows so far in 2021, (see here). Consequently, supplies have failed to keep pace with demand and generally resulted in lower inventories, higher U.S. imports and the strongest prices for crude oil, gasoline and natural gas since 2014.

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Low Investment and Implications for Global Supply

investments  global energy  oil supply 

Dean Foreman

Dean Foreman
Posted September 17, 2021

Global oil and natural gas investments have fallen to record lows so far in 2021, as we recently discussed here. Yet, demand for both has risen alongside the economic recovery. Consequently, supplies haven’t kept pace with demand, and the mismatch between the two propelled gasoline and natural gas prices this summer to their highest levels since 2014.

 

In fact, global natural gas prices set a record-high for summer months as demand outdistanced supply.  Oil prices eased in August following a 16% run-up over the previous three months for Brent crude oil, but were back above $70 per barrel in mid-September.

 

Although economic and pandemic-related uncertainties and expected OPEC+ output increases have also likely impacted prices, the lack of investment for oil and natural gas production is an ominous sign, given that major conventional global oil and natural gas projects can take years to start producing. We could be in for global oil market tightening in 2022 and further upward pressure on prices, with prices already at their highest level since 2014.

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Higher U.S. Gasoline Prices Reflect Crude Oil Supply-Demand Imbalance

domestic oil production  federal leases  supply  white house 

Lem Smith

Lem Smith
Posted August 5, 2021

This summer, Americans saw gasoline prices rise to their highest level since 2014 as Congress debated infrastructure policy and economies worldwide continued their recovery.

Gasoline prices primarily reflect the local balance between gasoline supply and demand. Notably, the cost of crude oil is the largest component in the price of regular gasoline, accounting for 55% of the per-gallon cost, according to the U.S. Energy Information Administration. Right now, demand for crude oil is outpacing supply across the U.S. ...

Given these conditions, it’s no time to restrict or discourage U.S. natural gas and oil production. Instead, government and industry should work together to expand the safe and responsible development of American energy resources. Unfortunately, while America’s natural gas and oil are in high demand, the Biden administration has advanced misguided policies that could exacerbate the crude imbalance and further affect consumers.

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MSR: June Petroleum Demand Outpaces Supply, Imports Rise

monthly-stats-report  demand  supply  economic growth 

Dean Foreman

Dean Foreman
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.

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U.S. Mostly a Spectator While Others Address Supply-Demand Pinch

opec  white house  oil and natural gas production  supply  demand 

Mark Green

Mark Green
Posted July 8, 2021

The Biden administration says it is keeping a close eye on the OPEC+ talks on crude oil production because, as White House Press Secretary Jen Psaki said, it wants “Americans to have access to affordable and reliable energy at the pump.”

Unfortunately, the U.S. is mostly a spectator as OPEC+ debates crude oil supply, which continues to be outpaced by demand, putting upward pressure on crude costs. Because the cost of crude is the biggest factor in gasoline prices, U.S. pump prices have reflected this mismatch between demand and supply. 

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Q&A: The Demand/Supply Dilemma, Consumer Impacts and the Need for Sound Policy

demand  supply  us energy security  production  consumers  gasoline prices 

Mark Green

Mark Green
Posted July 1, 2021

In recent weeks API Chief Economist Dean Foreman has noted the return of petroleum demand, as economies strengthen in the U.S. and globally, to a level that’s outpacing supply (see here). In the Q&A that follows, Dr. Foreman discusses the impacts of the supply-demand mismatch on American consumers and markets, as well as the consequences of the Biden administration’s energy policy signals.

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Oil Demand Back, But Supply Remains Key Question

monthly-stats-report  supply  oil demand 

Dean Foreman

Dean Foreman
Posted June 17, 2021

The expectations and real prospects for global and U.S. economic recovery – and energy markets along with them – have accelerated and appear bright. That’s the overarching point in API’s quarterly Industry Outlook for Q2 2021 and Monthly Statistical Report (MSR), echoing what we have said since the third quarter of last year (see here, here and here). 

 

Yet, while API’s primary data for May 2021 show the recoveries in U.S. economic growth and petroleum demand have continued to go hand-in-hand, potential record global oil demand growth this year and the next, per the U.S. Energy Information Administration (EIA), could be overshadowed by the lowest industry-wide real capital expenditures on record for any quarter, by API estimates.

 

Demand up and capital investment down by record amounts is a concerning combination.

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East Coast Fuel Delivery Progresses, Cross-Sector Action Needed to Meet Demand

colonial pipeline  cybersecurity  fuel supply 

Lem Smith

Lem Smith
Posted May 12, 2021

Since the Colonial Pipeline Company experienced a ransomware attack last Friday, the natural gas and oil industry has worked with government to bring a critical piece of infrastructure back online and use alternate methods of transportation to meet the nation’s energy demand. This is America’s largest fuel pipeline – spanning 5,500 miles from Texas to New Jersey – and normally delivers millions of gallons of gasoline, jet fuel and other petroleum products every day to consumers in the South and along the East Coast.

For now, industry stakeholders and energy experts are working with the Pipeline and Hazardous Materials Safety Administration (PHMSA) in the Department of Transportation (DOT), Environmental Protection Agency (EPA) and other federal agencies to alleviate short-term supply disruptions.

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Responding to the Colonial Cyber Attack – and Industry’s Continuing Focus on Security

cybersecurity  colonial pipeline  fuel supply 

Mark Green

Mark Green
Posted May 11, 2021

The cyber attack on the 5,500-mile Colonial Pipeline that daily carries millions of gallons of fuel products from the Gulf Coast to New York and points in between, underscores some critically important points about the natural gas and oil industry – its resilience and agility in working to alleviate supply disruptions, the vital importance of investing in pipeline infrastructure for the economy and modern daily life, and the ongoing commitment by industry to protect itself and key assets from cyber criminals

Industry has worked and will continue to work with the Biden administration on actions to mitigate supply disruptions caused by the cyber attack. These include an hours-of-service exemption for those transporting gasoline, diesel, jet fuel and other refined products to 18 states, as well as a fuel waiver for states under EPA requirement to use reformulated gasoline (RFG) to be allowed to use conventional gasoline amid the disruption – helping fuel suppliers manage inventories until Colonial returns to normal operations.

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