Annual report

Production of distillate fuel oil rebounded sharply in 2006 as the oil and gas industry recovered from the lingering impact of the 2005 hurricanes that swept across the Gulf Coast, according to an American Petroleum Institute (API) year-end report.

“Our figures show modest increases for some products but a decline in overall oil demand as measured by product deliveries,” said Ron Planting, manager, information and analysis, for API.

The year's largest increase in deliveries was for distillate fuel oil, which includes both highway diesel and heating oil. Deliveries of that product rose 1.3% over 2005's level as economic growth led to expanded highway diesel use.

United States refineries and blenders produced record amounts of distillate fuel oil and gasoline in 2006, and refinery capacity expanded for the 10th straight year. Since 1996, US refiners have expanded capacity by more than two million barrels per day, or 14%.

With those 2006 production increases, a reduction in product demand because of high prices at the pump and mild weather (followed by a decrease in crude oil prices), and above-normal product inventory levels, diesel prices began coming down after peaking in August, according to the Department of Energy.

The average price of on-road diesel in January 2007 rang up at about $2.45 per gallon. In August 2006, the price topped out at more than $3 per gallon before heading downward. On January 16, 2006, the price was reported at $2.449 per gallon, only slightly less than the January 2007 price.

Meanwhile, API reported that environmentally friendly fuels gathered strength last year as production of new clean-burning ultra low sulfur diesel (ULSD) topped a record 2.6 million barrels per day by the fourth quarter. By the fourth quarter, ULSD accounted for most of the fuel used by on-highway diesel trucks and for about one-fifth of all US highway fuel.

At the same time, blending of ethanol into gasoline reached a new high of more than five billion gallons. More than 40% of all gasoline consumed in the United States now includes ethanol.

While annual gasoline demand stagnated during the first half of 2006, a drop of more than 80 cents per gallon, starting in August, appeared to reignite gasoline use in the second half. “Markets worked and suppliers and consumers responded to market signals,” said API Chief Economist John Felmy. “This is a dramatic difference from the supply shocks of the 1970s when markets were not allowed to function and consumers suffered sitting in long gas lines.”

Also in 2006, United States crude oil production outside of Alaska registered its first increase in six years as Gulf Coast production recovered and new production came onstream in other areas. A 12% slump in Alaskan production, mainly due to the shutdown of a major pipeline, pushed overall US crude production down 1.1%.

The US imported slightly less oil in 2006 than in the previous year. While crude oil imports edged up 0.5% for the year, product imports dropped 1.9% from 2005's record high.

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