MSR: Solid Petroleum Demand, Lowest SPR Levels since 1983

Dean Foreman
Posted January 20, 2023

API’s latest industry data showed petroleum demand outpaced supply in December. U.S. petroleum exports remained near their record levels, and Strategic Petroleum Reserve (SPR) crude oil inventories fell to the lowest levels since 1983.

Historically, oil demand outpacing supply and low inventories have supported prices, so a natural question is why the prices of oil and motor fuels have recently fallen. 

The basic answer is that macro factors have driven financial markets simultaneously grappling with interest rate hikes, a strong U.S. dollar foreign exchange rate, as well as diminished expectations for economic growth and commodities demand.

Yet, the MSR™ highlights in December showed quiet economic resilience. Key points: 

• Solid U.S. petroleum demand of 20.5 million barrels per day (mb/d) in December was in the 90th percentile of December readings in the past five years as well as versus December in all years on record since 1963.
• Domestic liquids production of crude oil (12.0 mb/d) and natural gas liquids (NGLs) (6.0 mb/d) rose by 0.6 mb/d year on year (y/y) versus December 2021.
• U.S. petroleum exports (10.2 mb/d) and net exports (1.9 mb/d) were the second highest for any month since 1947. As we’ve noted before, exports help allies abroad, but they also help stimulate American production, jobs and economic growth.
• U.S. crude oil stocks (combined commercial and strategic reserves) fell to their lowest level since January 1986.
• Distillate stocks increased for a third straight month.
• Gasoline prices decreased along with crude oil prices.

Let’s go a little deeper. As we have reported here for over 18 months, API’s industry data have accurately shown the recovery of U.S. petroleum demand along with the post-pandemic economy.

U.S. petroleum demand of 20.5 mb/d in December was at its second highest for the month of December since 2007 and above the 90^th percentile compared with its five-year range as well for December back to 1963.  

Demand was marked by weaker monthly demand for motor gasoline, distillates and residual fuel oil, which were largely offset by higher industrial use of “other oils” (that is, naphtha, gasoil, propane and propylene) and kerosene-type jet fuel. 

We call this fuel switching or substitution, and having inclusive measures of liquid fuels used by the transportation, industry, power generation and residential/commercial end-use sectors helped explain why demand and the broader economy remained resilient despite many isolated reports of slower U.S. retail sales, driving, freight or international trade.

For 2022 as a whole, U.S. petroleum demand grew by 2.3% y/y. This was the United States’ sixth highest annual growth rate since 2000, it rose year-on-year in all but the last two months of 2022 – solid by any measure.  

Consequently, liquid fuels have remained integral and historically strong.  Arguments to the contrary have lacked a proper grounding in the data.

The next question is how supply could step up to meet demand. U.S. production of crude oil and NGLs edged down between November and December but exceeded levels of a year ago. Specifically, U.S. crude oil production of 12.0 mb/d decreased by 2.0% month on month (m/m) or 0.2 mb/d from November but was up by 3.2% y/y (0.4 mb/d) compared with December 2021.

Crude oil production remained 1.0 mb/d below the U.S. record high of 13.0 mb/d in December 2019. For 2022 overall, U.S. crude oil production averaged 11.9 mb/d and rose by 0.7 mb/d y/y from 2021. 

As we discussed last month, both in this blog and in the API’s Industry Outlook, the impact of increased capital expenditures and drilling activities has been partially offset by cost escalation, lower rig productivity and contributions by previously drilled but uncompleted wells, according to  U.S. Energy Information Administration (EIA) estimates.   

As a result, 2022 crude oil production struggled to return to its highest levels, so meeting solid demand meant drawing down existing inventories. Although commercial crude oil inventories ended 2022 up by 2.4% y/y in December, SPR crude oil inventories fell by 36.7% y/y – again, their lowest level in 40 years.  On a combined basis, U.S. ending stocks of crude oil were down by 21.9% y/y in December.   

By contrast, U.S. petroleum demand in 2022 was 33.7% higher that it was in 1983.

API has now published the Distillate Economic Indicator^™ for four years, since December 2018.  Over this period, it has established a strong track record as an economic indicator. 

In December 2022, the Distillate Economic Indicator^™ had a reading of +0.7 – down from +1.0 in November – and a three-month average of +0.9. Positive values show year-on-year growth in U.S. industrial production and broader economic activity.

Overall, the December data for first glimpse at 2022 as a whole paint a picture of quiet economic resilience. 

Please see the latest API MSR™ for details, product-level analysis, and data.