Slippery U.S. Oil Demand

Slippery U.S. Oil Demand

LIAM DENNING

Updated Nov. 26, 2013 7:18 p.m. ET

It seems America is falling back in love with oil—or at least that is what weekly numbers from the U.S. Energy Department show. But oil demand is a slippery concept. The DOE’s latest data show the U.S. burned an average 20.27 million barrels a day in the four weeks ended Nov. 15. That is up 7.4% year over year, a figure more redolent of China than America. It is the fastest pace of growth in oil demand since May 2010, when the numbers were flattered by 2009’s economic malaise. Gasoline demand, meanwhile, was up 3.9%, and growth in October was apparently running at levels higher still, and not seen since late 2006.Thing is, those growth rates look wrong.

With the weekly numbers, officials essentially take refinery output, add imports and stock draws and subtract exports and stock additions to calculate an implied “product supplied” total. Fittingly enough, these data get refined: Every month, with a time lag, the DOE publishes its Petroleum Supply Monthly report.

Naturally, there is some discrepancy. What is interesting is that the gap has been growing.

Throughout the decade or so leading up to 2005, the weekly implied demand numbers were usually between 1.5 million and two million barrels a day higher than the more refined monthly Supply numbers, based on a rolling 12-month average. That gap blew out to more than 2.5 million barrels a day in the feverish summer of 2008 before falling back. But it has been rising sharply again over the past year and is now back to precrisis levels, at 2.64 million barrels a day—an amount slightly bigger than the entire oil consumption of Canada.

Another set of data also suggests weekly numbers overstate demand. The Bureau of Economic Analysis estimates how much is spent on motor fuels. According to this, Americans spent $982 billion in real terms on motor fuels in the four quarters ended in September—the same level it has been stuck at since the start of 2012.

One possible explanation of the gap: The U.S. went from being a net importer of refined products to a net exporter, sustainably, in the summer of 2011. By August of this year, net exports were more than 1.5 million barrels a day. Given such a rapid swing, official data may underestimate the real level of exports, boosting the weekly implied demand figure.

U.S. refiners able to process cheap, landlocked domestic crude and export products such as gasoline have an incentive to ship as many barrels overseas as possible. While most U.S. product exports go elsewhere in the Americas, about a fifth head to Europe, according to Sanford C. Bernstein. Of all sectors of the global oil industry, Europe’s refiners are most exposed to the rise in U.S. exports, especially if the real level is understated in the data.

Not only do Europe’s refiners face weak demand at home and increasing competition from across the Atlantic. They also must deal with new export-oriented refineries opening in Asia and, later this decade, new Brazilian refineries to process that country’s rising oil output.

Rather than raging thirst, rampant competition could be the real story beneath U.S. demand data.