A Detailed Look At U.S. Oil Demand

The past few years have definitely been outliers, not a black swan event so much as a diseased swan, but as people try to prognosticate the oil market, future demand remains a significant uncertainty. Numerous advocates of the energy transition point to soaring electric vehicle sales and investment in Cleantech more broadly, while ignoring the fact that oil demand is about to reach record highs. Global oil data, such as it is, tends to be woefully inadequate, leaving us to examine U.S. data rather like the drunk looking for his car keys not where he dropped them but under the street lamp because the light is better.

Not to say that the American experience of recent years is representative of global patterns: lower gasoline taxes make alternative fueled vehicles less attractive and a high level of natural gas liquids production provides feedstock for industry, displacing other petroleum products. Still, the fact remains that in 2022, U.S. oil consumption was 5.25% lower than in 2019 even as the economy had grown by 5% in the interim (inflation adjusted). The aggregate number is interesting and suggestive of a trend towards lower consumption and emissions, but as always the devil is in the details.

The first question is: what happened to primary energy consumption and its sources. The table below shows that primary energy consumption barely changed from 2000 to 2019 (pre-pandemic), growing just over 2% in nineteen years. During that time, fossil fuel consumption dropped by 4 Quads while nuclear and renewable increased by nearly 6. On the face of it, energy demand growth has slowed due to improved efficiency while the role of low-carbon (well, minimal carbon) energy replaced fossil fuels.

The table below shows the change in consumption by types of petroleum products, both finished products (such as gasoline), but the total, including additives and natural gas liquids (hydrocarbon gas liquids or HGL as a total). A big part of the change has been an increase in HGLs, reflecting the rise of production of NGLs in shale oil and gas and, to some extent, their growing use as petrochemical feedstocks.

Looking at a different slice, sectoral demand, it can be seen that demand in the transportation sector is significantly below trend (extrapolating the 2000-2019 p.a. growth to 2022), which was spread across the passenger vehicle, truck, and airline sectors as the fuel use data in the previous table showed. Interesting, industrial usage actually grew abnormally in the pandemic years, possibly reflecting the addition of petrochemical capacity using NGLs during this period. Residential demand was lower than the pre-pandemic trend despite working from home, but given the small amount of oil used in the residential sector and the influence of weather, this is unlikely to be important.

Which raises the issue of transportation usage and the impact of the pandemic. The drop in travel has been noted, although by 2022, jet fuel consumption in the U.S. was only 11% below pre-pandemic levels. (Consumption dropped nearly 40% in 2020 from the previous year, before the recent recovery.) But it does not seem as if the reliance on internet meetings/visits is having a major impact on jet travel, since 2022 jet fuel usage was close to pre-pandemic levels, even as some people and countries remained cautious about such travel.

And automobile traffic is supposedly the main victim of the pandemic. NPR’s Morning Edition on May 8^th reported that half of Americans are said to be working from home some or all the time, and quoted an analyst saying the typical building had half the number of people as they normally do. About 20% of office space around the country is said to be sitting empty.

That sounds near-apocalyptic for gasoline-fed commuting, although some context is needed. The National Association of Realtors put office vacancy rates in 2022 at 12%, versus 9.5% in the years before the pandemic. And it’s not clear how much of an increase there is in the number working from home. The Census Bureau estimated that those working from home tripled from 2019 to 2021, to 18% but it’s not clear how many worker-days this translates into.

Ultimately, the final piece of the puzzle is the number of miles driven. The figure below shows the actual data and clearly, for 2022, the number of miles remains below trend by 2.6%. (Why 2021 travel is so depressed is not clear, and could be an artifact of the way the data is collected.) But this certainly suggests that despite the talk depressed commuting, the impact on travel has been relatively minor, especially since this year could see a further rebound.

Gasoline demand in the United States has been weak for years, as the figure below shows, but this greatly predates the pandemic and the rise of electric vehicles (which remain a tiny part of the vehicles in use). The future could see a significant change but it appears as if the pandemic’s impact on the underlying oil demand trend will be small and short-lived. Vehicle efficiency appears to be a much more significant factor.

www.nar.realtorOffice Vacancy Rates in 2022
NcciRemote Work Before, During, and After the Pandemic
Census.govThe Number of People Primarily Working From Home Tripled Between 2019 and 2021