Trade group reports drop in U.S. demand for oil

The largest demand for the year was for distillate fuel.
By DAN CATERINICCHIA
ASSOCIATED PRESS
WASHINGTON -- While oil companies reaped gargantuan profits in 2006 amid high prices, U.S. demand for petroleum dipped for the second year in a row, a trade group said Friday.
Total U.S. petroleum deliveries, a measure of demand, fell by roughly 1 percent to 20.6 million barrels per day, down from 20.8 million in 2005, which was below the 2004 level, according to a report by the American Petroleum Institute.
The analysis was released one day after the Paris-based International Energy Agency estimated that oil demand in the world's industrialized countries declined by 0.6 percent in 2006. Global demand rose in 2006 as a result of the strength of consumption in China and the Middle East, but the world's appetite has grown at a slower pace for two straight years.
"We've entered that era on a worldwide basis where demand is growing more slowly," Citigroup oil analyst Tim Evans said.
"Oil producers may have priced themselves out of some markets," he added, noting that declining petroleum demand has historically occurred during economic recessions.
Analysts' forecast
Most analysts are forecasting slower economic growth in the U.S. in 2007, in part because of high energy prices but also because of the financial reverberations caused by a slowdown in the housing sector.
In the U.S. -- still the world's largest energy-consuming nation -- residual fuel oil deliveries experienced the steepest decline, falling nearly 27 percent to 673,000 barrels per day as industrial and electric utility facilities made major shifts to natural gas, the report said. Jet fuel demand declined by 2.8 percent to 1.6 million barrels a day, as airlines conserved fuel as best they could.
The year's largest increase in demand was for distillate fuel, which includes highway diesel and heating oil. Deliveries of distillate fuel rose 1.3 percent to about 4.2 million barrels per day.
Gasoline demand rose 0.8 percent to average more than 9.2 million barrels per day. The slight bump was met entirely by ethanol blends, which rose by nearly 35 percent, to an estimated 5.4 billion gallons, API said.
"Our figures show modest increases for some products but a decline in overall oil demand," said Ron Planting, manager, information and analysis, for API. "That decline came as airlines continued to find additional ways to economize on fuel, and as industrial users and electric utilities substituted less expensive natural gas for heavy fuel oil."
Despite the dip in demand, U.S. refineries and blenders produced record amounts of gasoline and distillate fuel oil in 2006, and many also produced massive quarterly profits.
But there may be a leak at the pump. Since rising to more than 78 per barrel last July, crude-oil prices have plummeted in recent weeks, briefly falling below 50 per barrel Thursday. On Friday, oil futures rose 49 cents to 50.97 a barrel in late-morning trade on the New York Mercantile Exchange.
Effects of mild weather
The mild winter weather in the Northeast and growing energy stockpiles has caused a more than 17-percent drop in oil since the end of 2006, and Chevron Corp., ConocoPhillips and BP PLC earlier this month warned that lower prices would dampen fourth-quarter earnings.
The report also showed:
Total petroleum imports fell slightly to 13.6 million barrels per day, with a 1.9-percent drop in products partially offset by a 0.5 increase in crude oil imports. Imports accounted for 66 percent of domestic petroleum use for the year.
U.S. crude oil production slipped 1.1 percent in 2006 to slightly more than 5.1 million barrels per day because of a 12.1-percent decline in Alaska because of the shutdown of a major pipeline. But output in the lower 48 states saw its first increase in six years, buoyed by the Gulf Coast's recovery from 2005's hurricanes and new production elsewhere.