Global| May 21 2004Some Demand and Supply Factors in the US Oil Market
Summary
We noted here this past Tuesday the push in retail gasoline prices above $2.00/gallon for the first time ever. The price of the US benchmark crude oil has closed above $40/barrel every day since May 11. The oil market is a world-wide [...]
We noted here this past Tuesday the push in retail gasoline prices above $2.00/gallon for the first time ever. The price of the US benchmark crude oil has closed above $40/barrel every day since May 11. The oil market is a world-wide one and highly sensitive to geo-political forces as well as more quantifiable production and demand factors. We don't presume here to interpret the impact of the Iraq War, for instance. But we can illustrate some of the more traditional economic aspects of this price situation.
Most prominently, demand for gasoline in the US is growing rapidly. According to Department of Energy data, gasoline consumption was up 4.5% year-on-year in the four weeks ended May 14 (volume, measured in thousands of barrels/day). The prior couple of months have seen similar magnitudes. These are higher growth rates than prevailed over the preceding three years and among the highest in the 16-year history of these data. In contrast, the demand for other petroleum products is soft. This spring, consumption of all petroleum products, including gasoline, is virtually flat with year-ago volumes, a striking development in view of the rapid growth in the overall economy.
Supply factors are responding to the upward price pressure. Oil production in the US has been drifting downward for years. But in recent months the number of operating drilling rigs has climbed noticeably. While still well below the level of 20 years ago, expansion of production operations is quite distinct. From a low annual average of 830 in 2002, the May 14 week showed 1,162 active rigs, according to the Baker Hughes tally.
World oil production has been increasing as well. Data through February (only published on May 10) shows total crude production up 3.7% from a year ago following two months averaging more than 7% gains. Production actually fell in 2001 and 2002. OPEC has participated in the production upturn.
| Selected Oil Market Indicators | May 14 | Apr | Mar | Year Ago | 2003 | 2002 | 2001 |
|---|---|---|---|---|---|---|---|
| US Demand for Gasoline (000 b/d) |
9168 | 8913 | 8644 | 8810 | 8887 | 8767 | 8544 |
| Year/year % Change | 4.5 | 6.5 | 3.0 | -- | 1.4 | 2.6 | 1.1 |
| US Demand for All Refined Product (000 b/d) |
19949 | 20010 | 19833 | 19962 | 20004 | 19565 | 19628 |
| Year/year % Change | -0.1 | -0.1 | -1.2 | -- | 2.2 | -0.3 | 0.1 |
| Feb | Jan | Dec | Year Ago | 2003 | 2002 | 2001 | |
| World Crude Oil Production (000 b/d) |
71936 | 72266 | 72126 | 69343 | 69458 | 66841 | 68056 |
| Year/year % Change | 3.7 | 6.7 | 7.8 | -- | 3.9 | -1.8 | -0.2 |
| OPEC Production (000 b/d) |
29413 | 29483 | 29283 | 28810 | 28005 | 26369 | 28318 |
| Year/year % Change | 4.6 | 10.2 | 12.3 | -- | 6.2 | -6.9 | -2.7 |
Carol Stone, CBE
AuthorMore in Author Profile »Carol Stone, CBE came to Haver Analytics in 2003 following more than 35 years as a financial market economist at major Wall Street financial institutions, most especially Merrill Lynch and Nomura Securities. She has broad experience in analysis and forecasting of flow-of-funds accounts, the federal budget and Federal Reserve operations. At Nomura Securites, among other duties, she developed various indicator forecasting tools and edited a daily global publication produced in London and New York for readers in Tokyo. At Haver Analytics, Carol is a member of the Research Department, aiding database managers with research and documentation efforts, as well as posting commentary on select economic reports. In addition, she conducts Ways-of-the-World, a blog on economic issues for an Episcopal-Church-affiliated website, The Geranium Farm. During her career, Carol served as an officer of the Money Marketeers and the Downtown Economists Club. She has a PhD from NYU's Stern School of Business. She lives in Brooklyn, New York, and has a weekend home on Long Island.
