OMC#003: US Demand Breakdown

Oilytics Market Commentary (OMC)

#3: US Demand Breakdown

The US oil landscape is fast changing. On the one hand, we see tweets like this which paints a very bullish US demand scene. However, to get a better understanding, we need to breakdown what composes these numbers. This is because conventional fuels and finished petroleum products is giving away market share to biofuels and lighter feeds.

The total product supplied hit a record high in May-23, up 2.5% compared to the 2018-19 period. If we look at Gasoline and Diesel, the largest demand components in the barrels, demand is down by 4.5% and 6% respectively. So, what is driving these record high total numbers?

The chart below shows the growing market share of HGLs (Hydrocarbon Gas Liquids) and Other Liquids taking away market share from the Finished Petroleum products. In May-23, Finished Petroleum Products was only 80.5% of total demand compared to 87.5% in May 2018. Digging into these numbers, the first factor is the increasing usage of biofuel at the expense of conventional fuels.

US biofuels production hit 1312KBD in May-23. Ethanol is the largest contributor to this, but the fastest growing fuel is Biofuels (excluding Ethanol). Of the 1312KBD, 1001 KBD is Ethanol and the rest 311KBD is biofuels which is mainly Biodiesel and renewable Diesel Fuel. These are small numbers in the context of conventional diesel demand which stands at ~4,000KBD. However, the growth in renewable diesel fuel demand is rapid and will continue to eat into the conventional diesel pool. The big change has been the introduction of renewable diesel fuel which was at zero production as close as 2018. California clean standards and the unconstrained ability to use renewable diesel have been the strong drivers behind the growth.

The second factor has been the rapid NGL production. US Crude production has seen some flatlining or tepid growth since Covid, however, NGL growth continues to be impressive. The shale fields bring incremental NGL production which gets processed by the expanding light feed US petchem industry. EIA numbers indicate towards a 46% or 2MMBD growth from May-23 compared with May-18.

Combining “other liquids”, NGLs, conventional finished petroleum products, US total demand is likely to hit new highs. However, the long term theme remains of Biofuel and NGL continuing to take market share away from conventional finished petroleum products. So record high US oil demand might not necessarily mean record high “finished petroleum products”.

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