Gasoline Use Continues to Drag

API reports weak demand and record production

WASHINGTON -- The American Petroleum Institute gave a slightly bearish outlook for gasoline Nov. 22, saying that gasoline prices at the pump are falling along with demand for the fuel even as the outlook for crude and distillates remain bullish, according to a report in Telvent DTN's OilSpot newsletter.

“Since [the week-ended Nov. 18], we’ve seen crude up 60 cents a gallon while gasoline fell 60 cents a gallon. Why? Weak demand and record [gasoline] production,” John Felmy, API’s chief economist, said during a press conference.

The decline in gasoline prices is recent, however, and has done little to reduce the burden of high energy costs to consumers, he said, quoting a recent forecast by the Energy Information Administration (EIA) that showed the average American household will spend about $2,700 this year on gasoline, up about 5% from $2,132 last year, according to the report.

The EIA forecast also showed the average household will spend $2,535 on heating oil this winter over last year, a 10.2% jump. Natural-gas costs are projected to rise 1.4% to $1,062 per household in the Northeast where most heating oil is used, according to the EIA.

Felmy also quoted from recently released monthly data from the API that showed U.S. motor gasoline demand slipped 0.3% in October from a year earlier while distillate demand showed robust growth, rising 12.3% over October 2010. Jet fuel demand was also up 4.8%, while residual fuel demand fell by 45% compared to a year earlier.

He said U.S. refinery gasoline and distillate production were at record highs--up 4.0% and 4.9%, respectively, for any October and on a year-to-date basis. Jet-fuel production showed double-digit production increases, while residual fuel production fell slightly in October. Refinery inputs were down in October compared with a year ago.

As a result, margins for turning a barrel of crude into gasoline and middle distillate fuels have fallen. The gasoline margin at $1.04 a gallon as of Nov. 21 is below the historical average of the year at between $1.10 and $1.20 a gallon, which reflects the weak demand for gasoline, he said.

On diesel, Felmy said prices tend to track crude prices, and the diesel market is tighter now in terms of supply, while demand was up about 6% for October in the API’s survey. That outlook is consistent with other surveys, including demand figures released recently by the trucking industry, he said.