Entering 2022, oil demand and economic growth have continued to go hand in hand.
U.S. petroleum demand entering 2022 - 22.2 million barrels per day (mb/d) as of Dec. 24, according to the U.S. Energy Information Administration (EIA) - reflected the recent state of oil markets. This was more than 11 percent above its level for the same week in 2019, largely before the onset of COVID- 19, and occurred despite nationwide gasoline prices in December 2021 that were nearly 30-percent higher than they were at the same point in 2019.
The laws of basic economics generally suggest that demand should fall as prices rise. While we could discuss the nuances of short-term versus longer-term responses, the strength and resilience of petroleum fuels' demand has indicated a solid U.S. economy despite pandemic-related travel disruptions, consumer price inflation that has pressured households, and energy policies intended to promote alternatives.
The areas where we see resounding strength have been three-fold.
First, with a continued shift toward online retailing, diesel fuel demand remained strong and increased by nearly 1 mb/d or one-third as of Dec. 24 compared with the same week in 2019, per EIA.
Second, motor gasoline demand was up by 0.8 mb/d or 8.5 percent over the same period, which could have reflected increased personal driving (versus flying) due to the pandemic. It also could reflect that the 2021 Christmas holiday coincided with a weekend, rather than a weekday as it did in 2019.
Third, the demand for intermediate petroleum products that go into refining and petrochemicals also rose by more than 11 percent compared to the same week in 2019 and represented 28.5 percent of total U.S. petroleum demand. This share of total demand is important because so-called "other oils" including naphtha, gasoil, propane and propylene enable the consumer products, sterile packing and medical plastics that have become even more essential in the current environment. It also demonstrates that consumerism has continued to evolve with the economy and despite the pandemic.
With simple number play - comparing the year 2022 with 22.2 mb/d of U.S. demand to begin the year - let's focus on the hundreds' place. One hundred million barrels per day is the threshold to which global oil demand returned in December 2021, per EIA estimates, and its highest level since December 2019. The significance of sustaining supply to meet 100 mb/d of global oil demand, which was once considered a Herculean feat, cannot be overstated.
Prior to the U.S. energy revolution that accelerated over the past decade, it was widely believed within industry that the "era of easy oil" had passed. Investments flowed into complex deepwater as well as heavy-oil developments throughout the Americas. There also was speculation that Colorado's kerogen- based oil shale could deliver reserves akin to those of Saudi Arabia. However, thanks to the prolific tight light oil developments that have since fueled a resurgence in U.S. production, any discussion of kerogen-based oil shale developments these days is about as common as that of an ice age, before it became better known as an animated film.
As we begin a new year, it's important to keep in perspective just how far oil demand and supply have come - along with the critical infrastructure and policies that enable their progress - and how crucial they remain for the economy and our everyday lives.
Dr. R. Dean Foreman is API's chief economist and an expert in the economics and markets for oil, natural gas and power, with more than two decades of industry experience including at ExxonMobil, Talisman Energy, Sasol and Saudi Aramco in forecasting and market analysis, corporate strategic planning and finance/risk management. He holds a Ph.D. in economics from the University of Florida and is known for his knowledge of energy markets, applying advanced analytics to assess risk in these markets, and clearly and effectively communicating with management, policymakers and the media.
For more information, contact Dr. Foreman at ForemanR@api.org or (202) 682-8530.
