It appears that fears of oil demand destruction were somewhat or greatly exaggerated as the Energy Information Administration (EIA) put out data that did not fit the doom and gloom narrative. Not only did total product demand hit 20 million barrels a day, but we also saw a record-breaking week of oil and product exports that surged to 6.96 million barrels a day. This is far from recessionary numbers.
While gasoline demand is below a year ago levels, we did see a spike in demand ahead of the holiday weekend. The EIA reported that demand surged to 9.413 million barrels a day, up 537,000 barrels from the week before. Perhaps buyers responded to a stabilization in gas prices at the retail level.
Still, the EIA points out that U.S. gasoline consumption fell below the 2021 average during the second quarter. The latest Petroleum Supply Monthly (PSM) showed that gasoline consumption (measured as product supplied) was 8.8 million barrels per day (b/d) in the United States during April 2022, 0.4% less than in April 2021. Although U.S. gasoline consumption has not completely returned to pre-pandemic levels, it generally increased from mid-2020 through the first quarter of 2022. April was the first month this trend reversed.
According to WPSR, U.S. gasoline consumption during the period starting with the first week in April through the first week in July averaged 8.9 million b/d, or 0.2 million b/d (3%) less than the same period in 2021. Excluding the pandemic year of 2020, this would be the smallest second-quarter U.S. gasoline consumption since 2001, if the PSM confirms the weekly data. The latest available data through April show that total vehicle miles traveled (VMT) increased 1.5% compared with April 2021, though a slight decline in weekly consumption suggests that there may have been less driving activity during May and June. Another factor, such as increased vehicle efficiency, must have led to less gasoline consumption. It is possible that higher gasoline prices, which were up 61% in June 2022 compared with June 2021, reduced VMT in May and June.
Yet, despite the fact that gasoline demand is below where it was a year ago, it’s far from looking like recessionary-type numbers even though we see evidence that the high prices have helped curtail demand. We also saw a big jump in demand last week which would also fly in the face of those predicting a major drop-off in oil demand. The EIA reported that distillate demand hit 4,382 million barrels a day.
The EIA reported that U.S. commercial {{0|crude oil inventories} } increased by 8.2 million barrels with help from a 5.9-million-barrel release from the SPR. The builds are still 10% below the five-year average for this time of year. Total motor gasoline fell by 2.5 million barrels last week and is about 8% below the five-year average for this time of year. Distillate fuel inventories also fell by 1.3 million barrels last week and are about 20% below the five-year average for this time of year.
Propane/propylene dealers are really worried as the EIA reported the increase by 0.9 million barrels last week and are about 16% below the five-year average for this time of year.
The refiners did an amazing job last week. The EIA refineries operated at 94.5% of their operable capacity last week. Gasoline production increased last week, averaging 10.3 million barrels per day. Distillate fuel production increased last week, averaging 5.4 million barrels per day.
My overall take on the market is that, based on the data we see from the EIA and the peripheral data that we’re seeing in the physical market, the sell-off in recent weeks is going to be short-lived. There is no doubt that we have seen some demand moderation because of high prices and fears of a global economic slowdown. The fear of an imminent cut-off of Russian oil supplies has changed into a situation where Russian oil is getting out faster than before the war. Besides, we still think there is still significant risk to supplies because Vladimir Putin is a loose cannon.
If Treasury Secretary Janet Yellen believes that’s a price cap scheme it’s going to hurt Vladimir Putin financially, she better come up with a better plan. If anything, it will only cause Russia to restrict supply which will create another price spike in oil. Every rational person that I have spoken with understands that this price cap endeavor is doomed to failure, yet don’t let failure be a reason for the Biden administration to try to implement this crazy plan.
Fossil fuels still dominate the U.S. economy. The EIA reported that Fossil fuels—petroleum, natural gas, and coal—accounted for 79% of the 97 quadrillion British thermal units (quads) of primary energy consumption in the United States in 2021. About 21% of U.S. primary energy consumption in 2021 came from fuel sources other than fossil fuels, such as renewables and nuclear. The 4-quad increase in U.S. primary energy consumption last year was the largest annual increase on record and was mostly attributable to a gradual return to pre-pandemic levels of activity. The increase in 2021 follows a 7-quad decrease in 2020, which was the largest annual decrease on record.
Consumption of renewable energy in the United States increased slightly from 11.5 quads in 2020 to a record of 12.2 quads in 2021. Increased use of renewables for electricity generation, including wind and solar energy, was partially offset by a decline in hydroelectricity generation. U.S. nuclear energy consumption totaled 8.2 quads in 2020, the lowest level since 2012.
Petroleum has been the most-consumed primary energy source in the United States since surpassing coal in 1950. Consumption of petroleum in the United States remains less than its 2005 peak, totaling 35 quads in 2021. U.S. natural gas consumption totaled 31.3 quads in 2021, a slight decline from the previous year.
U.S. coal consumption increased to 10.5 quads in 2021, marking the first annual increase in U.S. coal consumption since 2013. U.S. coal consumption has fallen by more than half since its peak in 2005. Reduced coal-fired electricity generation has driven much of this decline.
Last week the natural gas market had to deal with a crazy bearish report. What a difference a week makes! This week the Energy Information Administration reported a very bullish injection report. EIA put working gas in storage was 2,311 Bcf as of Friday, July 1, 2022, a net increase of 60 Bcf from the previous week. That put supplies 10.1% below a year ago and 12.2% below the five-year average.