U.S. Crude Oil and Liquid Fuels

U.S. Liquid Fuels Consumption

Total consumption fell 340 thousand bbl/d (1.8 percent) last year. Motor gasoline consumption accounted for the bulk of that decline, shrinking by 260 thousand bbl/d (2.9 percent). In the first quarter of 2012, total consumption continued to display weakness, falling by 670 thousand bbl/d (3.5 percent) from the same period last year (U.S. Liquid Fuels Consumption Chart). Higher retail gasoline prices contributed to the 150-thousand-bbl/d (1.7-percent) decline in motor gasoline consumption during the first quarter 2012 from the year before. Distillate fuel consumption also shrank by 150 thousand bbl/d (3.7 percent), largely due to unusually warm weather. For the rest of 2012, EIA expects more moderate year-over-year declines in motor gasoline consumption, averaging about 30 thousand bbl/d. In contrast, projected distillate fuel oil consumption recovers from the very warm winter with year-over-year growth averaging about 80 thousand bbl/d, boosted by continued growth in manufacturing production.

Despite assumed growth in U.S. real disposable income of 1.9 percent next year, forecast motor gasoline consumption continues to decline by 30 thousand bbl/d (0.3 percent) in 2013. This Outlook reflects high gasoline prices, slowing growth in the driving-age population, and the improving average fuel economy of new vehicles. Distillate fuel consumption, on the other hand, increases by 90 thousand bbl/d (2.4 percent), buoyed by an assumed near-normal winter and continuing growth in manufacturing output.

U.S. Liquid Fuels Supply and Imports

Domestic crude oil production increased by an estimated 190 thousand bbl/d (3.4 percent) to 5.66 million bbl/d in 2011. An increase of 450 thousand bbl/d in lower-48 onshore production in 2011 was partly offset by a 30-thousand-bbl/d production decline in Alaska and a 230-thousand-bbl/d production decline in the Federal Gulf of Mexico (GOM).

Forecast U.S. total crude oil production increases to 6.17 million bbl/d in 2012, an upward revision of 150 thousand bbl/d from last month’s Outlook, and the highest level of production since 1998. Growth in lower-48 onshore crude oil production of 560 thousand bbl/d in 2012 overshadows declines averaging about 30 thousand bbl/d in Alaskan output and 20 thousand bbl/d in GOM production (U.S. Crude Oil and Liquid Fuels Production Chart). The rise in production is driven by increased oil-directed drilling activity, particularly in onshore tight oil formations. The number of onshore oil-directed drilling rigs reported by Baker Hughes increased from 777 at the beginning of 2011 to 1,355 on May 4, 2012.

The share of total U.S. consumption met by total liquid fuel net imports (including both crude oil and products) has been falling since 2005, and averaged 45 percent in 2011, down from 49 percent in 2010. EIA expects that the total net import share of consumption will continue to decline to 43 percent in 2012 and to 42 percent in 2013.

U.S. Petroleum Product Prices

Regular-grade gasoline retail prices averaged $3.53 per gallon in 2011, $0.74 per gallon (27 percent) higher than the 2010 average. The price increase in 2011 largely reflected higher crude oil costs ($0.60 per gallon) and higher refinery gasoline margins ($0.10 per gallon). EIA expects the regular-grade gasoline retail price to increase to an average of $3.71 per gallon in 2012, primarily due to higher crude oil costs (U.S. Gasoline and Crude Oil Prices Chart). Regular-grade gasoline prices peaked at $3.90 per gallon in April and are projected to average $3.79 per gallon during the summer season (April through September) compared with last summer’s average of $3.71 per gallon. Forecast regular-grade gasoline prices decline to an average of $3.67 per gallon in 2013.

EIA expects that on-highway diesel fuel retail prices, which averaged $3.84 per gallon in 2011, will average $4.06 per gallon in 2012, down 9 cents per gallon from last month’s Outlook. In 2013, diesel fuel retail prices are projected to decline to $4.03 per gallon, 8 cents per gallon lower than the previous Outlook (U.S. Diesel Fuel and Crude Oil Prices Chart).

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by changes in both crude oil prices and wholesale margins. The retail price projections reflect higher prices for the average refiner acquisition cost of crude oil, which averages $110 per barrel ($2.61 per gallon) in 2012, compared with the $102-per-barrel ($2.43-per-gallon) average for 2011. EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the refiner acquisition cost of crude oil) will average 42 cents per gallon and 41 cents per gallon in 2012 and 2013, respectively, which are slightly higher than the previous 5-year average of 40 cents per gallon. In contrast, wholesale diesel margins are robust during the forecast interval due to strong world-wide demand for the fuel. In 2012, those margins average 60 cents per gallon, similar to the 2011 average and higher than the previous 5-year average of 52 cents per gallon. The diesel wholesale margin for 2013 remains wide, averaging 59 cents per gallon.