Residual Fuel Demand

Notes:

• In the 1986 to 1991 period, residual fuel oil demand declined only slightly both in absolute and as a percent of total product demand. While not shown, residual fuel demand had declined very rapidly during the first half of the 1980’s.

• The slower decline in the second half of the 1980’s happened because residual fuel prices are partially determined by the prices of competing fuels such as natural gas. Crude oil prices fell dramatically in 1986, bringing residual fuel prices down as well. Thus, residual fuel oil became more competitive with natural gas in the late 1980’s than it had since the large price increase in 1979. Still, residual fuel prices relative to crude oil weakened.

• As crude prices began to rise again after 1986, residual fuel prices did not rise as much, staying lower to maintain market share. As petroleum demand rose world wide after the 1986 price decline, the volume of residual fuel produced also rose, so the lower residual fuel price relative to crude oil helped residual fuel to clear the market.