Recent data shows that U.S oil consumption has declined in the first quarter by nearly 475,000 barrels a day as compared to last year. This has been the biggest decline in oil’s demand in any quarter, ever since the fall in oil consumption in the fourth quarter of 2001 after the 9-11 attacks. However, experts say that drop in U.S. demand doesn’t suggest that oil prices will decrease because there is a strong worldwide demand of oil.
Revised data from the Energy Information Administration suggests oil demand for the month of January dropped by 2.2 percent, meaning a decrease of 45,000 barrels a day leading to 20.114 million barrels a day when compared to the previous year.
This has been the lowest demand in any month, since April 2005. The figures showed a sharp decline of 2.8 percent, that is 574,000 barrels a day, lower the then the initial estimate for the month.
Jan Stuart, economist at UBS Securities LLC in New York, said "Macro folks won't officially label the U.S. economic environment a recession for some time, but at first glance (first-quarter) oil data sure look bearish," in a report Thursday.
Initial data for the months of February and March, which will most probably be revised, suggests that pressures from skyrocketing crude oil prices and the restless U.S. economy have played a role in lowering the U.S demand for oil.
Also, the EIA data for past three months suggest that an average demand of more then 20.3 million barrels a day fell by 1.4 percent, which is 300,000 barrels a day as compared to the EIA’s forecasts in early March. It has fallen by 2.3 percent, or almost 475,000 barrels a day ever since last year.
So, far the demand level in the first quarter has been the lowest ever recorded, since the fourth quarter of 2003. This has been the largest possible year-to-year decline since the fourth quarter of 2001 in which the demand dropped by 2.9 percent that is 572,000 barrels a days, following the 9/11 attack on the U.S.
There has been a slump in the first quarter as front-month Nymex crude oil prices were recorded as $97.90 a barrel on average, up 68.3 percent from the previous year. The EIA predicted that U.S crude would settle at $96.79 a barrel on average, in the quarter and it will slightly rise to average $97 for the second quarter.
Retail prices of gasoline, diesel fuel and domestic heating oil were highest according to the records, during this quarter.
Ed Morse, chief energy economist at Lehman Brothers warned about the fall in U.S and global demand for oil, Thursday. He further added, "The main risk on the demand side is for more downward revisions as a U.S. recession could affect global (gross domestic product) growth"
The analysts further suggest that prices are not expected to fall after this decline in demand.
UBS' Stuart said that "Unless oil prices come down in a hurry, they won't come down for some time," he further commented that, "Summer driving season is approaching. And even in a recessionary economy, seasonal gasoline demand will pick up."
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