WASHINGTON -- As House Speaker Nancy Pelosi (D-Calif.) signaled that she might conditionally reverse course on her position against drilling and allow a vote on the matter, yesterday 's Weekly Petroleum Status Report from the federal Energy Information Administration (EIA) showed that total U.S. petroleum consumption is down over last year because of crude oil prices, slow economic growth and mild weather. The average U.S. retail price for regular gasoline fell for the fifth consecutive week and the average U.S. retail diesel prices declined for a fourth week.
She is planning energy legislation [image-nocss] that may allow oil and gas drilling in new areas off the U. S. coast, according to a Bloomberg report citing an unnamed House Democratic leadership aide. Pelosi, who earlier rejected drilling, said she is open to considering energy exploration on the outer continental shelf as part of a broader package of measures to address rising energy costs, the aide said.
Pelosi would not allow a vote on drilling before the House adjourned for its five-week recess on August 1. In a CNN Larry King Live interview Monday night, she said "we can have a vote" on offshore drilling, "but it has to be part of something that says we want to bring immediate relief to the public and not just a hoax on them."
Among other provisions, Pelosi said she would like a requirement that electricity be produced from renewable sources such as wind and solar energy and the release of some oil from the nation's Strategic Petroleum Reserve (SPR) as an immediate brake on prices.
Pelosi and other Democrats previously have argued that the amount of oil available was not worth the environmental risk from extracting it. The Interior Department estimated the areas now off-limits may hold 17.8 billion barrels of oil. The Energy Department said the country consumes 20.2 million barrels a day.
Meanwhile, total U.S. petroleum consumption reported in the EIA's most recent Weekly Petroleum Status Report is once again lower than the same week last year. Average monthly total petroleum consumption has now declined for 12 consecutive months when compared with the same month the year before.
Within the last 25 years, the EIA said that it has identified six other 12-month periods during which there was a sustained drop in total petroleum consumption from the previous year (Table 1). In these cases, average monthly consumption was lower than the same month the year before for at least nine of 12 months. Only two of these periods have seen year-on-year declines in all 12 months. In fact, this has been the first 12-month decline since August 1991 when all 12 months saw year-over-year declines. This report examines these seven 12-month periods of declining consumption and the three primary factors contributing to the sustained declines: crude oil prices; slow economic growth; and mild weather (Table 2).
Prices. Prices have a large impact on petroleum demand. In four of the seven periods of historical consumption declines we saw significant increases in oil prices (Table 2). The increase in the price of crude oil this year has far exceeded the increases of those previous periods; however, consumer responses to price increases are not necessarily immediate. For example, the consumption declines that began in 1982 and 2001 came after significant increases in prices the years before.
Estimates generated by the EIA Short-Term Energy Outlook model of short-run demand elasticities with respect to oil prices indicate that total petroleum consumption would be expected to decline or increase by about 0.4% for every 10% permanent increase or decrease in the WTI crude oil price over a two-year horizon (Reduced Form Energy Model Elasticities from EIA's Regional Short-Term Energy Model, May 2006). Consequently, almost all of the decline in total petroleum consumption over the last 12 months could be attributed to the increase in oil prices.
Economy. Generally, a slowing economy depresses petroleum demand, not only because of lower industrial and commercial output but also because of increasing unemployment and lower or more slowly growing personal income. Since 1982, real gross domestic product (GDP) has grown by an average 3.1% per year. Only during three of the seven periods of decline in petroleum consumption was there significant weakness in economic growth, each related to an economic recession (Tables 2 and 3).
While real GDP growth over the last 12 months has been above the levels characteristic of the past recessions, the economy has nevertheless been slowing. First quarter 2008 real GDP was about 2.5% higher than the same period the year before. Real GDP year-over-year growth slowed in the second quarter 2008 to 2% and is projected to continue to slow over the next three quarters.
Weather. Finally, winter temperatures can significantly impact total petroleum consumption. The influence of temperatures on fuel demand for space heating is generally measured as heating degree-days, which is computed by subtracting the average of the day's high and low temperatures from 65 degrees Fahrenheit, with negative values set equal to zero. Each day's heating degree-days are summed to create a heating degree-day measure for a specified reference period. Heating degree-days in the Northeast, the region in which most heating oil is consumed, were lower than the year before in five of the seven periods of lower total petroleum consumption (Table 2). Residential consumption of petroleum, primarily for space and water heating, fell from an average of 4.9% of total petroleum consumption during the 1980s to an average of 3.7% since 2000. Consequently, a period with 20% fewer heating degree-days (such as May 2001 through April 2002) might be expected to reduce total petroleum consumption by between 0.7% (based on the residential sector share of total consumption in this decade) and 1% (based on the average residential sector consumption share during the 1980s).
The weather was a significant contributor to the declines in total petroleum consumption over the May 2001-April 2002 and September 2005-August 2006 periods, possibly explaining 35% to 40% of the total. In the earlier three periods, the warmer weather may explain about 10% to 15% of the drop in total petroleum consumption. Temperatures in the Northeast this past winter were not significantly different from the previous one.
Outlook. Slow GDP growth and continued high WTI crude oil prices are the primary reasons that EIA 's August 2008 Short-Term Energy Outlook projects continued declines in total U.S. petroleum consumption for most months through the end of next year. The declines are not expected to be as large as they have been over the first half of this year, with 2009 average total consumption projected to be about 120,000 barrels per day, or 0.6%, lower than the 2008 average. WTI prices, which averaged $72 per barrel in 2007, are projected to average $119 per barrel in 2008 and $124 per barrel in 2009. Real GDP year-over-year growth is projected to slow to 1.3%, 0.8% and 0.5% over the next three quarters, respectively, before starting to recover in the second half of next year. Finally, temperatures in the Northeast during 2009 are projected to be slightly colder than 2008, with heating degree-days about 3% higher, not enough to significantly affect the nation 's petroleum consumption.
According to EIA, the U.S. average retail price for regular gasoline fell for the fifth consecutive week, sliding another 7.1 cents to hit 380.9 cents per gallon, a cumulative loss of 30.5 cents from the all-time high of July 7. Falling more than any other region, the price on the East Coast plunged 8.9 cents to 379.9 cents per gallon. The smallest drop of any region, 4.1 cents, was in the Midwest where the price slipped to 373.1 cents per gallon. Dropping 8.1 cents to 368.5 cents per gallon, the Gulf Coast price remained the lowest regional price. The price in the Rocky Mountain region fell 5.3 cents to 395.3 cents per gallon. The West Coast price dropped 8.3 cents to 405.7 cents per gallon, a cumulative plunge of 40.3 cents from the all-time high in the region set on June 23. The average price in California retreated another 8.7 cents to 411.8 cents per gallon.
Average U.S. retail diesel prices continued their downward trek for a fourth week, tumbling another 14.9 cents to 435.3 cents per gallon. Despite losing more than 41 cents since hitting the all-time high on July 14, the average U.S. price was still 150.6 cents higher than last year at this time. The average price on the East Coast fell 14.3 cents to 442 cents per gallon. The price in the Midwest remained the lowest of any region, plunging 15.2 cents to 426.7 cents per gallon. The average price in the Gulf Coast dropped 15.1 cents, to 429.9 cents per gallon. Once again, the price drop in the Rocky Mountains was the smallest for any region, tumbling 13.2 cents to 447.3 cents per gallon. Receding another 15.3 cents, the West Coast price hit 451.1 cents per gallon, down nearly 40 cents from the record set July 14. In California, the average price plummeted 17.4 cents to 460.7 cents per gallon.
Click herefor tables.
Also,click here for Lundberg Survey's analysis of the retail price drop.
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