Driving Season Arrives Amid Indications More Supply is Needed

Faustine Jean-Louis
Posted June 16, 2023

In the latest API Monthly Statistical Report (MSR™), with primary data through May, U.S. petroleum demand remained relatively steady at 19.8 million barrels per day (Mb/d).

The growth in transportation fuel consumption was a direct result of the official start of the summer driving season, which saw increases in motor gasoline consumption, which was the largest volume for any month since August 2021; and in jet fuel demand, which reflected Americans’ thirst for international and domestic travel. Even distillate demand, which has been trailing 2022 levels as a result of a slowdown in the manufacturing sector, bounced back this month, just 0.1% off its five-year average.

Yet the wider economic consensus (IMF and World Bank) forecasts a contraction in economic growth this year and next year. And despite this slowdown, the U.S. will need somewhere between 0.2 – 0.3 million barrels a day this year and next year, per the U.S. Energy Information Administration (EIA).

MSR™ highlights:

• U.S. petroleum demand had a month over month (m/m) net increase of 65,000 barrels: motor gasoline consumption rose 264,000 b/d m/m in May; k-jet fuel consumption added 14,000 b/d m/m; and distillate fuel consumption increased by 98,000 b/d m/m.
• U.S. total supply of crude oil and natural gas liquids fell by 93,000 barrels per day (b/d) month on month (m/m) in May for a total of 18.5 Mb/d. Crude oil production fell month over month in May to below 12.5 Mb/d for the first time in six months. Yet current levels are 781,000 barrels above last year and are 1.4 Mb/d higher than its five-year average.
• Refining throughput and capacity utilization rates rose in May – the second highest for the month since 2019.
• Motor gasoline and diesel stocks fell below their five-year average. Inventory draws left motor gasoline and distillate stocks 9% and 17.3% below their five-year average, respectively.

In May, refiners processed 229,000 more barrels of crude oil. This implied a run rate of 92.1% - running 2.8 percentage points above its 10-year average. And this enabled the largest supply of motor gasoline so far this year at 9.8 Mb/d, which is 109,000 barrels more than last month. It also procured the largest volume of distillate fuel this year, which rose 0.3 Mb/d m/m and 0.2 Mb/d y/y to 4.9 Mb/d.

For some additional context, because of the pandemic, the world was down 1.1 Mb/d of daily petroleum refining capacity. From 2020 to 2021, refinery run rates were about 79% and 86%, respectively, but that did not stop the U.S. from processing the largest volume of crude oil in the world. The U.S. ultimately stepped up in supplying Americans and those abroad with more gasoline, diesel and jet fuel when it needed it the most.

In the latest Short-Term Economic Outlook released by EIA, we are seeing a tighter supply and demand balance in the petroleum liquids market this year and next year. While OPEC+ cuts are expected to culminate into a 0.4 Mb/d year-on-year (y/y) loss to global production, the U.S is expected to provide an additional 0.7 Mb/d and other non-OPEC suppliers with 1.9 Mb/d.

But U.S. crude oil production fell in May by 180,000 barrels per day, making it the third month this year that exhibited a decline in production. And it was also the lowest for any month since December 2022, and short of its November 2019 peak by almost 0.6 Mb/d.

However, for the month of May, year over year production was up almost 800,000 barrels per day, and this has been the case for 20 months now – barring September 2021, which had a microscopic decline. And just two months prior to May, oil production was 12.7 Mb/d, although this was a response to the relatively higher prices we saw some months prior.

In May, active oil-directed and gas -directed rigs in the U.S. fell by 16 rigs m/m, after a two-month decline that reduced the total rig count by 45 rigs in April. This made it the sixth straight month of decline for the oil rig count, while gas posted the biggest decline in a month since 2016, per Baker Hughes. This seems to support the EIA’s expectation of a tighter demand/supply balance this year, where demand exceeds supply.

It is important for policy makers to take heed on the state of the economy and provide effective energy policies, because shifting geopolitical, economic, and financial conditions can affect future production as far out as a year from now. Shifting market fundamentals can culminate into a financial reward or risk for Americans.

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