MSR: Oil Demand Nears January 2020 Levels

Dean Foreman
Posted February 18, 2021

As oil prices rallied this past week, headlines suggested that oil demand recovery is expected to pick up speed (subscription required) later this year. However, API’s latest Monthly Statistical Report, based on January data, suggests that U.S. oil markets already kicked off 2021 with a remarkable month:

• Total U.S. petroleum demand returned to within 1.2% of its level from January 2020 despite the pandemic.
• Refining and petrochemical demand for other oils – naphtha, gasoil, propane/propylene reached a record-high level (6.5 million barrels per day, mb/d) and 33.1% share of total U.S. petroleum demand.
• The lowest U.S. crude oil imports for January since 1992 propelled U.S. petroleum net exports.

Consider this: For all of the economic pain and dislocation caused by the 2020 COVID-19 recession, U.S. petroleum demand returned to within a hair of its pre-COVID levels and well within the five-year range.

The record 6.5 mb/d of other oils in refining and petrochemicals reflected increased needs for packaging and medical plastics as well as a seasonal rise in propane heating demand. 

Moreover, this amount absolutely blew away its previous monthly high (from Dec. 2020) by 0.7 mb/d and with new variants of COVID-19 could reflect enduring product demand growth. Distillates/diesel fuel demand also exceeded its pre-COVID level as online retailing and freight shipping accelerated.  However, motor gasoline, jet fuel and residual fuel oil each decreased year-on-year by double-digit percentages in January.

Even though there has been fuel substitution through the pandemic, the return of total petroleum demand to within 1.2% of its pre-COVID-19 levels reinforces how economic growth and oil demand have continued to go hand-in-hand – a critical point to consider about U.S. and global oil markets, which despite tempered expectations by the U.S. Energy Information Administration (EIA) for 2021 and 2022 projects an economic recovery along with oil demand that returns to strong levels.

EIA’s projection of a global and U.S. economic recovery is a hopeful sign, but uncertainty remains, with U.S. leading economic indicators giving mixed signals in January. For the industrial and freight transportation sides of the economy, API’s D-E-I^™ (distillate/diesel economic indicator) suggested continued industrial production and economic growth. By contrast, indicators of consumer sentiment and expectations weakened.

Other highlights from API’s February 2021 MSR:

• Solid U.S. production of crude oil (11.1 mb/d) and natural gas liquids (5.1 mb/d).
•  Refinery activity increased for the third consecutive month.
• Inventories of crude oil receded, but products rose.

For details and analysis, please see the latest MSR as available at no cost on the Chief Economists’ section of API’s website, linked here.