STRENGTHENING U.S. ECONOMY WILL BOOST ENERGY DEMAND - BUT BY HOW MUCH?
Mar 11, 2002 (Petroleum Finance Week/PBI Media via COMTEX) -- Recently revised economic figures suggest that the much-ballyhooed U.S. recession was never really a recession at all. But while energy demand obviously benefits from economic strength, it's difficult to predict what impact this news may have on the sector, oil patch economists say.
The news that has economists rethinking the recession is a revised GDP figure that shows 1.4 percent growth in the fourth quarter of 2001, rather than the original estimate of 0.2 percent growth. Bank One - in a research note headlined "The Recession That Wasn't?" - marveled over the growth figures.
"Instead of asking why this economy is so weak, we should all stand in amazement that the U.S. economy weathered the worst inventory bubble in its history, and the extraordinary events of Sept. 11, and was still able to produce growth," wrote Diane Swonk, the Chicago bank's chief economist.
Sarah Emerson, managing director of Energy Security Analysis Inc. in Boston, said that she expects the United States will eventually reach a 3 to 3.5 percent annual economic growth rate, and the rest of the world could reach that figure sometime afterward. At that level of economic growth, global oil demand growth could be expected to rise by approximately 1.75 percent, she suggested.
"That gets you back sometime in 2003 to a growth rate that isn't necessarily the highs of the mid-'90s, but is a fairly sustainable and healthy growth rate," Emerson told Petroleum Finance Week. "The problem is it's easy to make assumptions about the 2003 and beyond period, but we still have this sort of transition year which is 2002."
For 2002, Emerson expects global oil demand to grow by 700,000 barrels per day (b/d), or roughly shy of 1 percent. In comparison, demand growth for oil globally in 2001 rose by just 300,000 b/d. "I think that's a very, very plausible demand growth," she said.
John Felmy, chief economist for the American Petroleum Institute in Washington, looks at the situation product by product. U.S. gasoline demand is very robust right now, perhaps as a function of the economy, but more likely as a function of people's reluctance to fly, he told Petroleum Finance Week. "It looks like gasoline demand [growth] is running above 2 percent right now for the most recent periods," Felmy said.
Of course, more drivers and fewer flyers mean that jet fuel demand is down considerably, approximately 10 percent or so. Felmy thinks the economic rebound may not help that demand as much as the resolution of security concerns and the shortening of long lines at the airport. On the other hand, diesel fuel demand is directly affected by the economy, he continued. "If we see strong economic growth, you're going to see shipments of products and so on," Felmy said. "Because everything travels by truck, that could be a positive influence."
The Energy Information Administration released its latest short-term energy outlook report last week, predicting that total U.S. petroleum demand is expected to recover only after a weak first half of 2002.
"Assuming an economic recovery accelerating in the latter half of the current year and normal weather, [U.S.] demand growth in 2002 is expected to average 60,000 b/d, or 0.3 percent," it said. "But the first half is expected to witness a substantial decline of 340,000 b/d due to continued economic weakness, recent record-warm weather and low natural gas prices."
EIA projects 2002 second half U.S. demand to be approximately 460,000 b/d higher than during the same period last year. Motor gasoline demand should grow by 2 percent this year, following only 1.4 percent growth in 2001 for the entire year as well as the period following the Sept. 11 terrorist attacks. EIA still anticipates that commercial jet fuel demand will be 7 percent lower during 2002's initial six months, but 10 percent higher in the second half.
In 2003, EIA expects domestic petroleum demand to climb by 780,000 b/d, or 3.9 percent, pushed by forecast GDP growth of 4 percent. Globally, EIA projects oil demand growth of 600,000 b/d for 2002, down from the 650,000 b/d projected in last month's outlook. In 2003, it expects global oil demand to grow by 1.4 million b/d - with more than half of that coming from the United States - due to an economic recovery.
Petroleum Finance Week, Vol. 10, No. 10
By Jodi Wetuski in Houston
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