The American Petroleum Institute’s mid-year statistical review of petroleum and natural gas trends in the U.S. offers a gloomy forecast for the near future: high prices, especially for diesel fuel, lasting into the winter months.
“Tight markets and high prices continue to characterize the current energy situation for virtually all fuels,” said John Felmy, the API’s chief economist, during a briefing at API’s Washington headquarters.
“Motorists are paying more for gasoline; trucking companies are paying higher diesel prices; and industrial users of natural gas are paying more, making it harder for them to compete in world markets,” he said. “Heating oil and propane prices are at unprecedented levels for the summer on the New York Mercantile Exchange. If these futures price levels persist, retail prices could be high just as consumers begin to fill their tanks for the coming winter.”
Felmy said the causes are the same in every case: weak supply and strong demand. “The booming economy has led to higher demand for all energy supplies and, with limited ability to bring additional supplies online quickly, upward price volatility has been the result,” he explained.
Demand on oil stocks for distillate fuel oil – from which diesel is produced – is particularly strong, noted Ronald Planting, manager-information and analysis, for the API’s statistics department. Demand for distillates rose 6.1% in the second quarter this year versus the same period in 2003, compared to a 1.4% rise for gasoline.
“In fact, among the major petroleum products, gasoline saw the smallest percentage increase for the quarter,” he said. “Early in the year, the strength of the economic recovery had boosted gasoline demand. But by June, the effects of higher prices slowed that growth to only about half a percent. However, the strengthening economy continued to propel second-quarter growth in diesel for trucking and for other uses.”
Meanwhile, U.S. refineries in the first half of 2004 set new records for the production of gasoline and distillate fuel oil. Refineries ran at nearly 92% of capacity— the highest for that six-month period in three years, Planting said.
“With an increase in demand and slippage in domestic crude oil production, imports of crude oil and petroleum products continued to rise in the first half of 2004 – to a new high of a little more than 62% of domestic consumption,” he noted. “However, inventories continued to be relatively lean, with both gasoline and distillate inventories 5% below average by mid year, compared to the same timeframe in 2003.”