Oil Deliveries Slip, Signaling an Easing of Demand
When it comes to oil and gas prices, how much is too much?
This much, apparently.
Costly oil and gasoline are pushing industry and consumers to use less, the American Petroleum Institute said Wednesday. Oil deliveries--a key demand indicator--slipped nearly 1% during the first half of this year and gasoline deliveries dropped nearly 4% in June from year-earlier figures, the trade group said.
Meanwhile, oil prices fell on Wednesday as confusion continued over whether OPEC will increase petroleum supplies.
Saudi Arabia’s on-again, off-again promised production hike of 500,000 barrels a day already may be leaking into the market, even though Organization of Petroleum Exporting Countries President Ali Rodriguez said the cartel’s members would not be pumping more oil immediately.
West Texas intermediate crude oil for August delivery slumped 52 cents to $31.42 a barrel on the New York Mercantile Exchange, giving up almost half of Tuesday’s gain, which was sparked by Rodriguez’s remark that more oil is not needed. OPEC already has raised production twice this year.
Saudi Oil Minister Ali al Naimi said in early July that OPEC’s biggest producer was prepared to pump more oil on its own to bring prices closer to $25 from the $30-plus neighborhood where they have been mired. The Saudis did not confirm the rumored production increase on Wednesday, and Rodriguez told reporters he had received assurances from Saudi Arabia that no independent increase was imminent.
Oil prices that have risen 60% in a year are helping to keep U.S. gasoline prices near record levels. U.S. demand, as measured by petroleum deliveries, was unfazed in 1999, jumping 3%. But from January through June of this year, oil deliveries fell 0.9%, the first decline in five years, API said.
Much of that decrease reflects industrial and utility users of heavy fuel oil switching to less-expensive natural gas, API said. A weakening economy was not a factor, the group said, because growth is slowing from extremely strong levels.
Gasoline deliveries inched down 0.7% in the first half of the year, then plunged 3.9% in June from the same month last year. The June decline coincided with soaring retail prices in the Midwest, largely because of problems supplying the region’s new reformulated gasoline.
API analysts said that June deliveries of 8.54 million barrels a day may not be a completely reliable way to measure actual gasoline consumption. Consumption is clearly down, the group said, although perhaps not as much as indicated by the delivery decrease for the month.
The relatively small six-month decline in gasoline deliveries illustrates that drivers have limited flexibility in reducing their usage, said Ronald J. Planting, API’s manager of statistical analysis.
“When gas prices go up, people cut back on some of their low-priority uses,” he said. The small decline in the face of big price run-ups “says to me that there aren’t that many low-priority uses.”
U.S. oil production has continued its decline at a much slower pace than in 1999, when output fell the most in the decade. But current domestic crude oil production of less than 5.9 million barrels a day is at a 50-year low.
API President Red Cavaney told a news conference in Washington that more U.S. land must be opened for oil exploration if the United States wants to reduce oil imports.
“There have been no new refineries built in the U.S. in 25 years,” Cavaney said. “Traditionally, we have gotten excess supply from Europe, but they too are using up all their excess.”
The Sierra Club said Wednesday that conservation rather that more production is the answer. The group’s recent report, “Drilling Under Detroit: A Long-Term Solution to Gas Prices That Works,” advocates requiring more fuel-efficient cars and light trucks, in particular sport-utility vehicles.
“There may not be a penicillin for high gas prices, but there is a vaccine: Make America’s cars and sport-utility vehicles go further on a gallon of gas,” the report said.
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Reuters was used in compiling this report.
