Released on August 13, 2008
(Next Release on August 20, 2008)

Declines in U.S. Petroleum Consumption Expected to Continue
If you feel like you’ve been economizing by driving less and adjusting your thermostat more, you’re not alone. Total U.S. petroleum consumption reported in today’s Weekly Petroleum Status Report (WPSR) is once again lower than the same week last year. Average monthly total petroleum consumption has now declined for 12 consecutive months when compared with the same month the year before. Within the last 25 years, we’ve identified 6 other 12-month periods during which there was a sustained drop in total petroleum consumption from the previous year (Table 1). In these 6 cases of 12-month decline, average monthly consumption was lower than the same month the year before for at least 9 of 12 months. Only 2 of these periods have seen year-on-year declines in all 12 months. In fact, this has been the first 12-month decline since August 1991 when all 12 months saw year-over-year declines. This TWIP examines these seven 12-month periods of declining consumption and the three primary factors contributing to the sustained declines: crude oil prices; slow economic growth; and mild weather (Table 2).

Prices. Prices have a large impact on petroleum demand. In 4 of the 7 periods of historical consumption declines we saw significant increases in oil prices (Table 2). The increase in the price of crude oil this year has far exceeded the increases of those previous periods. However, consumer responses to price increases are not necessarily immediate. For example, the consumption declines that began in 1982 and 2001 came after significant increases in prices the years before.

Estimates generated by the EIA Short-Term Energy Outlook model of short-run demand elasticities with respect to oil prices indicate that total petroleum consumption would be expected to decline or increase by about 0.4 percent for every 10 percent permanent increase or decrease in the WTI crude oil price over a 2-year horizon (EIA, Reduced Form Energy Model Elasticities from EIA's Regional Short-Term Energy Model, May 2006). Consequently, almost all of the decline in total petroleum consumption over the last 12 months could be attributed to the increase in oil prices.

Economy. Generally, a slowing economy depresses petroleum demand, not only because of lower industrial and commercial output but also because of increasing unemployment and lower or more slowly growing personal income. Since 1982, real gross domestic product (GDP) has grown by an average 3.1 percent per year. Only during 3 of the 7 periods of decline in petroleum consumption was there significant weakness in economic growth, each related to an economic recession (Tables 2 and 3).

Table 3. Correspondence Between Periods of Decline in Total Petroleum Consumption and Recessions.
Period covered	Recession reference dates (peak - through)
Aug. 2007 - Jul. 2008
Sep. 2005 - Aug. 2006
May 2001 - Apr. 2002	Mar 2001 - Nov 2001
Sep 1990 - Aug 1991	Jul 1990 - Mar 1991
Jul 1989 - Jun 1990
Dec 1984 - Nov 1985
Jun 1982 - May 1983	Jul 1981 - Nov 1982
Source of recession reference dates: National Bureau of Economic Research.

While real GDP growth over the last 12 months has been above the levels characteristic of the past recessions, the economy has nevertheless been slowing. First quarter 2008 real GDP was about 2.5 percent higher than the same period the year before. Real GDP year-over-year growth slowed in the second quarter 2008 to 2.0 percent, and is projected to continue to slow over the next three quarters.

Weather. Finally, winter temperatures can significantly impact total petroleum consumption. The influence of temperatures on fuel demand for space heating is generally measured as heating degree-days, which is computed by subtracting the average of the day's high and low temperatures from 65 degrees Fahrenheit, with negative values set equal to zero. Each day's heating degree-days are summed to create a heating degree-day measure for a specified reference period. Heating degree-days in the Northeast, the region in which most heating oil is consumed, were lower than the year before in 5 of the 7 periods of lower total petroleum consumption (Table 2). Residential consumption of petroleum, primarily for space and water heating, fell from an average of 4.9 percent of total petroleum consumption during the 1980s to an average of 3.7 percent since 2000. Consequently, a period with 20 percent fewer heating degree-days (such as May 2001 through April 2002) might be expected to reduce total petroleum consumption by between 0.7 percent (based on the residential sector share of total consumption in this decade) and 1.0 percent (based on the average residential sector consumption share during the 1980s).

The weather was a significant contributor to the declines in total petroleum consumption over the May 2001-April 2002 and September 2005-August 2006 periods, possibly explaining 35 to 40 percent of the total. In the earlier 3 periods, the warmer weather may explain about 10 to 15 percent of the drop in total petroleum consumption. Temperatures in the Northeast this past winter were not significantly different from the previous one.

Outlook. Slow GDP growth and continued high WTI crude oil prices are the primary reasons that EIA’s August 2008 Short-Term Energy Outlook projects continued declines in total U.S. petroleum consumption for most months through the end of next year. The declines are not expected to be as large as they have been over the first half of this year, with 2009 average total consumption projected to be about 120,000 barrels per day, or 0.6 percent, lower than the 2008 average. WTI prices, which averaged $72 per barrel in 2007, are projected to average $119 per barrel in 2008 and $124 per barrel in 2009. Real GDP year-over-year growth is projected to slow to 1.3 percent, 0.8 percent, and 0.5 percent over the next three quarters, respectively, before starting to recover in the second half of next year. Finally, temperatures in the Northeast during 2009 are projected to be slightly colder than 2008, with heating degree-days about 3 percent higher, not enough to significantly affect the nation’s petroleum consumption.

Gasoline and Diesel Price Drops Continue
The U.S. average retail price for regular gasoline fell for the fifth consecutive week, sliding another 7.1 cents to hit 380.9 cents per gallon, a cumulative loss of 30.5 cents from the all-time high of July 7. Falling more than any other region, the price on the East Coast plunged 8.9 cents to 379.9 cents per gallon. The smallest drop of any region – 4.1 cents – was in the Midwest where the price slipped to 373.1 cents per gallon. Dropping 8.1 cents to 368.5 cents per gallon, the Gulf Coast price remained the lowest regional price. The price in the Rocky Mountain region fell 5.3 cents to 395.3 cents per gallon. The West Coast price dropped 8.3 cents to 405.7 cents per gallon, a cumulative plunge of 40.3 cents from the all-time high in the region set on June 23. The average price in California retreated another 8.7 cents to 411.8 cents per gallon.

Average U.S. retail diesel prices continued their downward trek for a fourth week, tumbling another 14.9 cents to 435.3 cents per gallon. Despite losing more than 41 cents since hitting the all-time high on July 14, the average U.S. price was still 150.6 cents higher than last year at this time. The average price on the East Coast fell 14.3 cents to 442 cents per gallon. The price in the Midwest remained the lowest of any region, plunging 15.2 cents to 426.7 cents per gallon. The average price in the Gulf Coast dropped 15.1 cents, to 429.9 cents per gallon. Once again, the price drop in the Rocky Mountains was the smallest for any region, tumbling 13.2 cents to 447.3 cents per gallon. Receding another 15.3 cents, the West Coast price hit 451.1 cents per gallon, down nearly 40 cents from the record set July 14. In California, the average price plummeted 17.4 cents to 460.7 cents per gallon.

Propane Build Continues Upward Momentum
Propane inventories continued their upward momentum for a second week with a 2.0 million-barrel gain that pushed the Nation’s primary supply of this fuel higher to an estimated 49.2 million barrels as of August 8, 2008. The strong level of imports over the past several weeks have contributed to the recent surge in inventories that, until recently, had been rather lackluster. Inventory gains were reported in all regions, with the largest being reported in the Midwest with 0.9 million barrels. The Gulf Cost region followed with a weekly gain of 0.8 million barrels, while in the East Coast, inventories rose by 0.2 million barrels. The combined Rocky Mountain/West Coast region added 0.1 million barrels to inventories during this same time. Propylene non-fuel inventories surged by 0.4 million barrels and accounted for a 5.9 percent share of total propane/propylene, compared with the prior week’s 5.4 percent share.

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