(Bloomberg) – America’s oil demand has soared to new heights in a remarkable turn since just a year ago, when the pandemic rocked the U.S. economy and decimated demand.
A moving average of total oil products shipped in the US – an indicator of consumption – rose in the week of July 2 to its highest seasonal value in three decades. While gasoline and diesel demand has returned to pre-pandemic levels, an increase in petroleum use for products like plastic, asphalt, lubricants and other industrial needs is driving the recovery.
“Much more industry is coming back online,” said Rebecca Babin, Senior Energy Trader at CIBC Private Wealth Management, USA. “When the economy is booming, these other types feed in as well as gasoline and diesel.”
The comeback of US consumption threatens to accelerate a global supply deficit as the OPEC + alliance cannot agree on an agreement to increase production and American shale producers prefer fiscal discipline to production increase. The recovery in demand comes with kerosene consumption still 24% below July 2019, suggesting that markets could tighten even further and prices could rise if air traffic normalizes.
Petrochemical manufacturers invested heavily in manufacturing in the United States in the decade after fracking technology spiked oil and gas production as well as low-cost natural gas liquids. The result has been a rush of plastics manufacturing along the US Gulf Coast in recent years.
As the pandemic began, plastics manufacturers were well positioned to capitalize on the need for more packaging as consumers order more products for delivery. There was also an urgent need to provide protective equipment to health care workers.
“We hear anecdotal stories of high demand for petrochemical feedstocks,” said Quinn Kiley, portfolio manager at Tortoise, a company that markets approximately $ 8 billion in energy-related assets. “If you think of an increased demand for PPE (personal protective equipment) and one-touch plastics in the face of pandemic-related problems, that makes sense.”
Other increases in consumption besides gasoline and diesel are more than a dozen products, including butane for mixing gasoline and lubricants for heavy machinery. Propane demand has also risen as Americans are stranded at home more than ever during the pandemic barbecue.
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The crude oil market will remain tense as weekly production in the US will be around 11 million barrels per day for months, or about 2 million barrels less than it was at the beginning of 2020, and OPEC + will not start production until August at the earliest.
The US supply situation is so tight that the West Texas Intermediate Futures rose to their strongest level since October compared to the international benchmark Brent at the beginning of the month. In fact, some refineries in the Rocky Mountain region are struggling to secure barrels because production there has been the slowest to recover.
Strong demand for crude oil has pushed inventory levels in Cushing, Oklahoma, the delivery point of the Nymex futures contract, to their lowest level since March 2020.
The need for crude oil to keep up with demand should hold oil in the US and attract imports, said Artem Abramov, partner and head of shale research at Rystad Energy AS.
The rise in industrial use comes on top of a robust recovery in both gasoline and diesel, which still make up the bulk of oil demand.
The week is running up to Weekly gasoline deliveries hit a new record in the EIA data during the Independence Day holidays. The rolling average of delivered diesel fuels reached 4.07 million barrels per day, the highest weekly value since 2017.