Demand

This section reviews the ways we use petroleum and the data sources that depict its use.  When petroleum products are burned to produce energy, they may be used to propel a vehicle, as would be the case with gasoline, jet fuel, or diesel fuel; to heat a building, as with heating oil or residual fuel oil; or to produce electric power by spinning a turbine directly or by creating steam to spin a turbine.  In addition, of course, oil products may be used as a raw material (a "feedstock") to create petrochemicals and products, such as plastics, polyurethane, solvents, and hundreds of other intermediate and end-user goods. 

Global Oil Consumption

The industrialized countries are the largest consumers of oil but until 1998 had not been the most important growth markets for some years.  The countries of the Organization for Economic Cooperation and Development (OECD), for instance, account for almost 2/3 of worldwide daily oil consumption.  In contrast, however, oil demand in the OECD grew by some 11 percent over the 1991-97 period, while demand outside the OECD (excluding the Former Soviet Union) grew by 35 percent.  The Former Soviet Union presents a special case.  The collapse of the Russian economy that accompanied the collapse of Communism led to a decline in oil consumption of more than 50 percent over the 1991-98 period.  

The developed economies use oil much more intensively than the developing economies, and Canada and the United States stand almost alone in their consumption of oil per capita (see graph).  For instance, oil consumption in the United States and Canada equals almost 3 gallons per day per capita.  (The difference is these countries' transportation sectors, with their dependence on private vehicles to travel relatively long distances.)  Oil consumption in the rest of the OECD equals 1.4 gallons per day per capita.  Outside of the OECD, oil consumption equals 0.2 gallons per day per capita.

Regionally, the largest consuming area remains North America (dominated by the United States), followed by Asia (with Japan the largest consumer), Europe (where consumption is more evenly spread among the nations), and then the other regions.  As the regional graphs illustrate, Asia was the region with the fastest demand growth until the 1998 economic crisis in East Asia.  The region's economic upheaval is a central reason for the oil price collapse of 1998.

The United States and Canada use oil more for transportation than for heat and power, but the opposite pattern holds for most of the rest of the world:  most regions use more oil for heat and power than for transportation.  As a result, global demand for oil is highest in the Northern Hemisphere's cold months.  There is a swing of 3-4 million barrels per day (some 5 percent) between the 4th quarter of the year, when demand is highest, to the 3rd quarter, when it is lowest.  (The precise amount varies from year-to-year, depending on weather, economic activity and other factors.)  While the 4th quarter is not the coldest in any region, estimated demand calculations are swollen by the traditional stock building that occurs during the period.    

Demand for crude oil is derived from the demand for the finished and intermediate products that can be made from it.  In the short-term, however, demand for crude oil may be mismatched with the underlying demand for petroleum products.   This misalignment occurs routinely as a result of stock changes: the need to build stocks to meet seasonal demand, for instance, or the desire to reduce stocks of crude oil for economic reasons.  In the longer term, blending non-petroleum additives into petroleum products (such as ethanol or other oxygenating agents into gasoline) can also reduce crude oil demand relative to demand for finished products.

U.S. Consumption by Sector

The use of petroleum products as vehicle fuels is classified as "transportation" use.  In the United States, in contrast to other regions of the world, about 2/3 of all oil use is for transportation, as shown in the graph.   (In most of the rest of the world, oil is more commonly used for space heating and power generation than for transportation.)  Gasoline, in turn, accounts for about 2/3 of the total oil used for transportation in the United States.  Other petroleum products commonly used for transportation include diesel fuel (used for trucks, buses, railroads, some vessels, and a few passenger autos), jet fuel, and residual fuel oil (used for tankers and other large vessels). 

In the years since the Arab Oil Embargo of 1973/74, transportation has become a more important component of oil demand, as price and policy encouraged the substitution where possible of other fuels for oil.  In non-transportation or "stationary" uses -- burning oil for space heating in buildings, such as homes, apartment buildings, stores, and schools, and burning oil for power to run factory equipment, or to generate electricity -- substitution of other energy sources for oil was possible, some of it immediately and some with the turnover of equipment.   In transportation uses, in contrast, there is little fuel substitution possible in the short term and only limited potential in the longer term, given current technology.   Consumption of oil in these stationary uses -- residential, commercial, industrial and electricity generation -- fell from a peak of 8.7 million barrels daily in 1978 (about 47 percent of total oil use) to a low of less than 6 million barrels per day in the late 1980's and early 1990's.  Consumption in these sectors has been 6.5-7.0 million barrels per day more recently. 

Thus, while oil continues to account for more than 95 percent of all the energy used for transportation in the United States, oil  accounts for less than 20 percent of the energy consumed for other, stationary uses, down from 30 percent in 1973.

U.S. Consumption by Product

Gasoline is the perfect example of a consumer product: available everywhere, purchased often and in easy transactions.  Its consumption accounts for almost 45 percent of all oil use (see graph).  The dominance of gasoline in the oil mix is not new; gasoline has been the most important oil product since the 1920's.  The quest to maximize gasoline production has been the driver in the development of refinery technology and design in the United States, as discussed in the section on refining. 

After the Arab Oil Embargo, the implementation of gasoline consumption standards for new passenger cars (the "Corporate Average Fuel Economy" or CAFE standards) was important in moderating gasoline demand growth, even while both the number of cars on the road and the miles they traveled increased.  Beginning in the early 1990's, however, the burgeoning popularity of pick-up trucks and sports utility vehicles (SUV's) for passenger travel has sparked new gasoline demand growth.  These light trucks and SUV's are not as fuel efficient as standard automobiles and, as they have become more and more popular, have reduced the average fuel economy of cars on the road.  (Whereas the fleet averages for light trucks and SUV's must be at least 20.7 miles per gallon, automobiles must average a minimum of  27.5 miles per gallon)

Government mandates in recent years have created a variety of U.S. gasoline grades to meet different regional environmental records.   So-called "reformulated gasoline," designed to control ground-level ozone, is largely a phenomenon of the Northeast and some large cities elsewhere in the country.  In addition, California requires a special version of reformulated gasoline.  Reformulated gasoline accounts for about 30 percent of nationwide gasoline consumption.   "Oxygenated" gasoline is required during the cold months in areas where carbon monoxide levels are high.  Even during the October - March gasoline season, the special gasoline for these areas accounts for less than 10 percent of the nationwide total.   It is important to note that the mandate to supply these different grades regionally and seasonally imposed a significant reduction in distribution flexibility, because gasoline can no longer be interchanged from one region to another, or held over from winter to summer.  This lack of flexibility was one of the important contributors to the gasoline price spike experienced during 2000.

Distillate fuel oil use ranks second behind gasoline.   Unlike gasoline, which is used almost exclusively in the transportation sector, distillate fuel oil is used in every sector: for home heating fuel, for industrial power, for electric generation, as well as for diesel-fueled vehicles.  The largest use of distillate is in the transportation sector.  Diesel fuel used in vehicles on the highway -- trucks, buses, passenger cars -- must be low sulfur (no more than 0.05 percent sulfur by weight), an Environmental Protection Agency regulation implemented in late 1993.  Distillate fuel oil used off the highway -- for vessels, railroads, farm equipment, industrial machinery, electric generation, or space heating -- is not subject to the low on-highway standard, but as a matter of course contains only a small amount of sulfur, commonly 0.2 percent sulfur by weight.  (California has a more stringent standard, requiring that all distillate meet the current low highway specification.)  The U.S. Department of the Treasury also requires that the non-highway product be dyed to distinguish it from the taxable on-highway diesel.  These requirements also limit distribution flexibility for distillate fuels, requiring segregated storage and transportation, and preventing one product from easing shortages of the other. 

The use of distillate fuel oil for home heating was once much more prevalent than it now is.  The Mid-Atlantic and, more particularly, New England remain the two regions with an appreciable share of oil-heated single family homes.  In other regions, older homes have been converted from oil heat to gas, and oil no longer accounts for a noticeable share of the new home construction market.  Thus, the seasonal increase in inventories and demand is largely confined to the Northeast. 

Jet fuel is the third-highest product in demand and, like gasoline, is largely confined to use in the transportation sector.  (There is also limited use of jet fuel as a stationary turbine fuel, and occasionally it is used to blend into heating oil to stretch supplies during periods of peak demand.)  The military formerly utilized a different, naphtha-based product for its planes, instead of the commercial, kerosene-based product.  In recent years, however, the military has largely converted to kerosene-based jet fuel.

Residual fuel oil, the heavy fuel used to run boilers for power generation and to propel tankers and other large vessels, once accounted for as much as 30 percent of the oil burned in stationary uses, and 20 percent of all United States oil use.  By 1997, those shares had fallen to 7 percent and 4 percent, respectively.  Residual fuel oil's heyday, the 1970's, represented a particular time in energy markets.  The natural gas supply was constrained by Federal regulation and, although U.S. refiners had little incentive to make the low priced heavy fuel oil, refineries in the Caribbean and Venezuela supplied the East Coast's residual fuel oil for electric power generation, urban space heating in large apartment buildings, and industrial power.  The market for residual fuel oil was eroded by a variety of factors, including price competition with (newly available) natural gas and environmental restrictions.  Residual fuel oil's use for apartment building space heating is now confined largely to older buildings in New York City, and its use in electric generation is limited largely to a few utilities in Florida and the Northeast. 

By now, the major product with the most pronounced seasonal pattern in its consumption is high sulfur distillate, the kind used for home heating, with high consumption periods during the winter months.  Its use, concentrated in the Northeast, represents a relatively small share of total consumption in the United States, however.  Gasoline demand, which rises in the warmer months, exhibits a shallower swing between the "low" demand season and the "high" demand season.  At the low end (generally January/February), estimated gasoline consumption is 7-8 percent below the annual average and, at the high end (July/August), it is some 4 percent above the annual average.  See graph.

U.S. Consumption by Region

Different regions exhibit different oil consumption patterns.  Population and regional economic activity are two important determinants, but the traditional availability of alternative fuels, petroleum transportation, geography, and a host of other factors are also important.  The East Coast consumes the largest volume of oil of the five major regions of the country, as shown in the graph.  (For data gathering and analysis, the United States is divided into the five broad regions, the Petroleum Administration for Defense Districts or PADD's delineated in World War II.  See map, Appendix A.)   On a per capita basis, however, the East Coast, Midwest and the West Coast consume about the same amount, and less than the two other regions, the Gulf Coast and the Rockies.  The Gulf Coast, the heart of the U.S. petroleum industry, presents an interesting case, because more than 25% of the Gulf Coast's "consumption" is not use of oil for energy but rather as a feedstock to make petrochemicals, and finally petroleum-based products such as a variety of plastics, polyurethane, and synthetic fibers.  The Rockies are another interesting case:   the sparsely populated region shows low consumption on an absolute basis, but relatively high regional consumption per capita; high use of transportation fuels to travel long distances makes the difference.

Measuring Oil Consumption

Measuring oil consumption presents a dilemma for public and private analysts.  The size and complexity of the market and the number of consumers and suppliers make data collection a daunting task.  The EIA, like other governmental agencies and analysts, uses a variety of approaches to measure oil consumption. 

In-depth consumer surveys, for instance, can provide a good deal of insight into how people use oil, the characteristics of the fuel-burning equipment they use, and other factors that affect consumption.  EIA has undertaken a variety of complex surveys to examine oil consumption, such as the Residential Energy Consumption Survey and the Manufacturing Energy Consumption Survey.  These surveys, however, are costly, time-consuming, and of necessity have a long lag before publication.  They are not practical alternatives for short-term data collection.

Collecting data from suppliers, a much smaller universe, is a better option for estimating consumption on a routine basis.  Here, too, the depth of required/requested information is critically affected by the frequency with which it must be reported.  On an annual basis, for instance, EIA collects and publishes detailed sales data such as its Sales of Fuel Oil and Kerosene report, the source for sector-by-sector information on consumption of these fuels.  Available on a State-by-State basis, the report's data also feed EIA's multifuel State Energy Data System (SEDS).  On a monthly basis, EIA collects sales data for major products from refiners and from prime suppliers, which it publishes in the Petroleum Marketing Monthly (PMM).  The prime supplier data, reflecting first sales into a State for local consumption, are published in the PMM on a State-by-State basis.   

Finally, for petroleum, as for other goods, EIA also routinely monitors the sources of supply in order to estimate the amount of product delivered to the market.  To make the data collection manageable, it focuses on the "primary supply" system -- refiners, importers, pipelines, and marine transporters of petroleum, large storage facilities, and/or storage facilities with access to waterborne deliveries or pipelines.  For most refined petroleum products, the balance is:

However, while petroleum analysts equate "Product Supplied" with consumption, there is a lag between petroleum delivered into the market and petroleum actually consumed.  The product may sit in a tank belonging to a wholesaler, a retailer, or even a consumer  before it is used.  We cannot capture these small movements and therefore can be surprised by short-term volume fluctuations as these tanks are unexpectedly filled or emptied.  Thus, the methodology overstates "demand" when the product moves into wholesaler or retailer storage and understates it during the period when it is actually consumed.