Slippery U.S. Oil Demand

Slippery U.S. Oil Demand


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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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