Petroleum Market - The U.S. Petroleum Consumption to Grow Robustly, Set Against Price Turbulence and Increased Stocks

Crude Petroleum September 08, 2016
Author: Anna Sergeeva
Market Analyst

petroleum market

Photo: © alones / Bigstockphoto

Prices on the USA oil products market have been falling in recent years, against tangible fluctuations in the price margin (the difference between the selling price of petroleum products and the crude oil price). The mid-2015 transient margin's increase did not result in the USA's marked output of petroleum products, which is already growing at a faster rate than domestic consumption. Export supply is insufficient to achieve a surplus output volume, which has generated a record increase in USA petroleum product reserves over the past eight years.

As a result of the falling market prices, the value of shipments in the oil refining industry in 2015 experienced a significant tumble. As projected, this drop in prices will support the positive trend in terms of primary oil products' consumption. It will take some time, however, to achieve a new market equilibrium between increased oil products output and domestic consumption. Those petroleum companies that can adapt to the price pressure, will continue to operate smoothly, due to the sustained demand for petroleum products.

Over the past few years, USA oil products prices have been falling, in the wake of oil price indications. There are two reasons for this: firstly, there is the American oil refining industry's use of imported crude oil and secondly, there is currently stiff competition on the petroleum market; therefore the price dynamic for USA oil products, in general, coincides with the changes in global oil prices.

However, the decline in prices for oil products is not only determined by the falling oil prices, but the prevailing market conditions. It should be noted, that in terms of the oil products pricing structure, the cost of crude oil accounts for only half, and the other half is derived from taxation, oil-processing costs, marketing and logistics costs, as well as the producers' surplus. In this context, the change in the market conditions of the USA oil products market results in margin fluctuations for the oil producers.

U.S. Retail Price Difference For Gasoline And Crude Oil

At the beginning of 2015, crude oil and gasoline retail prices experienced a sharp fall, but the subsequent recovery in gasoline prices has been more pronounced. As a result, during the period July-August 2015, the price margin (the difference between the gasoline retail price and the crude oil price) peaked in terms of the past few years. At the end of 2015 through to the beginning of 2016, gasoline prices plummeted, as a result of the continued drop in oil prices. The rapid decline in oil prices led to a slump in the producers' margins, to levels which roughly mirror the 2014 figures. A short spike by the oil companies to achieve an increased margin was all too brief, and the oil products prices trend once again tallied with the oil price.

The transient margin increase seen in 2015 did not result in the USA's marked output of petroleum products, which were already indicating long-term steady growth. The discrepancy between oil products output and supply to the domestic market has increased steadily over the past three years, set against the very moderate rise in oil products consumption. Excess oil products are sent for export or stored as reserves. Despite the tangible increase seen in exports in recent years, its volume remains insufficient to achieve a surplus output. Amongst other factors, the slump in terms of the competitiveness of American petroleum products on the markets abroad, as a result of the strong dollar, has restricted the export of oil products. This has resulted in an increase in stocks of oil products, which recorded a record growth of 13% in 2015.

U.S. Oil Products Output, Supply And Stocks Trends

As a result, oil products prices have been subject to additional pressure from surplus output and the increase in reserves, which in turn has led to a rapid decline and contraction of the producers' margins. It is expected that the expanding output of petroleum products in the USA will exert pressure on prices until the supply and demand balance attains a new market equilibrium.

The drop in oil products prices, against stable natural volumes of consumption, has led to a reduction in shipments, in value terms. Following the fall in market prices, the value of shipments in the oil refining industry declined by 26% in 2015. The negative impact, however, on the oil refining industry was not so much the relative drop in the crude oil and oil products prices, as a reduction in the margin, due to the rapid fall in the sales price. This margins decrease is forcing oil companies to cut back on production outlay and investment designed to enhance output capacity, and to focus purely on maintaining current output levels.

U.S. Petroleum Products Output vs. Value of Shipments

Despite the fluctuations in supply volume in value terms, supplies of primary oil products in the USA are set to retain a steady, positive trend. Industry's gradual recovery, coupled with increased employment and enhanced access to credit will be the foundations for this.

Most oil products consumption originates from private and commercial vehicle use. According to the recent market research by IndexBox, in terms of the oil products supplies structure in the USA, gasoline is the leader (gasoline accounted for 54% of supplies in 2015), distillate fuel oil ranks next (23%; diesel oil is also included in this category), and jet fuel occupies third place with 9%. Other types of fuel account for approx. 2% of consumption. The remaining share is composed of other petroleum products. It should be noted that, despite several fluctuations, the structure of the oil products output has remained relatively stable over the past 10 years.

U.S. Oil Products Supplies, By Type

According to projections from the U.S. Energy Information Administration, petrol consumption is set to grow slowly in the medium term. Increased vehicle use, combined with rising incomes, greater access to car loans and low petrol prices, are listed as being the key factors for this. Economic recovery and rising incomes will heighten the demand for travel (inlcuding that made as business development trips), thereby setting the pre-conditions for the growth in aviation fuel consumption. Increasing transport use will also result in a growth in diesel fuel consumption. The expansion of those sectors (e.g. the chemical industry) that use petroleum products for further processing, is yet another positive driver for the oil products market.

However, a certain period of time is required to achieve a new market equilibrium between oil products output, which is growing tangibly and siginificantly, and domestic consumption, which is developing at a much slower pace. At the same time, surplus output and increased reserves will exert pressure on prices. Should the oil market be subject to fresh shocks, those companies that are able to adapt to the new pricing reality will continue to show stable growth.

Do you want to know more about the U.S. petroleum market? Get the latest trends and insight from our report. It includes a wide range of statistics on

  • petroleum market share
  • petroleum prices
  • petroleum industry
  • petroleum sales
  • petroleum market forecast
  • petroleum price forecast
  • key petroleum producers

Source: U.S. Petroleum Market. Analysis And Forecast to 2020