U.S. Consumption by Product

Gasoline is the perfect example of a consumer product: available everywhere, purchased often and in easy transactions.  Its consumption accounts for almost 45 percent of all oil use. The dominance of gasoline in the oil mix is not new; gasoline has been the most important oil product since the 1920's.  The quest to maximize gasoline production has been the driver in the development of refinery technology and design in the United States. 

After the Arab Oil Embargo, the implementation of gasoline consumption standards for new passenger cars (the "Corporate Average Fuel Economy" or CAFE standards) was important in moderating gasoline demand growth, even while both the number of cars on the road and the miles they traveled increased.  Beginning in the early 1990's, however, the burgeoning popularity of pick-up trucks and sports utility vehicles (SUV's) for passenger travel has sparked new gasoline demand growth.  These light trucks and SUV's are not as fuel efficient as standard automobiles and, as they have become more and more popular, have reduced the average fuel economy of cars on the road. The fleet averages for light trucks and SUV's must be at least 20.7 miles per gallon, automobiles must average a minimum of  27.5 miles per gallon.

Government mandates in recent years have created a variety of U.S. gasoline grades to meet different regional environmental records.   So-called "reformulated gasoline," designed to control ground-level ozone, is largely a phenomenon of the Northeast and some large cities elsewhere in the country.  In addition, California requires a special version of reformulated gasoline.  Reformulated gasoline accounts for about 30 percent of nationwide gasoline consumption.   "Oxygenated" gasoline is required during the cold months in areas where carbon monoxide levels are high.  Even during the October - March gasoline season, the special gasoline for these areas accounts for less than 10 percent of the nationwide total.   It is important to note that the mandate to supply these different grades regionally and seasonally imposed a significant reduction in distribution flexibility, because gasoline can no longer be interchanged from one region to another, or held over from winter to summer.  This lack of flexibility was one of the important contributors to the gasoline price spike experienced during 2000.

Distillate fuel oil use ranks second behind gasoline.   Unlike gasoline, which is used almost exclusively in the transportation sector, distillate fuel oil is used in every sector: for home heating fuel, for industrial power, for electric generation, as well as for diesel-fueled vehicles.  The largest use of distillate is in the transportation sector.  Diesel fuel used in vehicles on the highway (trucks, buses, and passenger cars) must be low sulfur (no more than 0.05 percent sulfur by weight), an Environmental Protection Agency regulation implemented in late 1993.  Distillate fuel oil used off the highway -- for vessels, railroads, farm equipment, industrial machinery, electric generation, or space heating -- is not subject to the low on-highway standard, but as a matter of course contains only a small amount of sulfur, commonly 0.2 percent sulfur by weight.  (California has a more stringent standard, requiring that all distillate meet the current low highway specification.)  The U.S. Department of the Treasury also requires that the non-highway product be dyed to distinguish it from the taxable on-highway diesel.  These requirements also limit distribution flexibility for distillate fuels, requiring segregated storage and transportation, and preventing one product from easing shortages of the other. 

The use of distillate fuel oil for home heating was once much more prevalent than it now is.  The Mid-Atlantic and, more particularly, New England remain the two regions with an appreciable share of oil-heated single family homes.  In other regions, older homes have been converted from oil heat to gas, and oil no longer accounts for a noticeable share of the new home construction market.  Thus, the seasonal increase in inventories and demand is largely confined to the Northeast. 

Jet fuel is the third-highest product in demand and, like gasoline, is largely confined to use in the transportation sector.  (There is also limited use of jet fuel as a stationary turbine fuel, and occasionally it is used to blend into heating oil to stretch supplies during periods of peak demand.)  The military formerly utilized a different, naphtha-based product for its planes, instead of the commercial, kerosene-based product.  In recent years, however, the military has largely converted to kerosene-based jet fuel.

Residual fuel oil, the heavy fuel used to run boilers for power generation and to propel tankers and other large vessels, once accounted for as much as 30 percent of the oil burned in stationary uses, and 20 percent of all United States oil use. The natural gas supply was constrained by Federal regulation and, although U.S. refiners had little incentive to make the low priced heavy fuel oil, refineries in the Caribbean and Venezuela supplied the East Coast's residual fuel oil for electric power generation, urban space heating in large apartment buildings, and industrial power.  The market for residual fuel oil was eroded by a variety of factors, including price competition with (newly available) natural gas and environmental restrictions.  Residual fuel oil's use for apartment building space heating is now confined largely to older buildings in New York City, and its use in electric generation is limited largely to a few utilities in Florida and the Northeast. 

By now, the major product with the most pronounced seasonal pattern in its consumption is high sulfur distillate, the kind used for home heating, with high consumption periods during the winter months.  Its use, concentrated in the Northeast, represents a relatively small share of total consumption in the United States, however.  Gasoline demand, which rises in the warmer months, exhibits a shallower swing between the "low" demand season and the "high" demand season.  At the low end (generally January/February), estimated gasoline consumption is 7-8 percent below the annual average and, at the high end (July/August), it is some 4 percent above the annual average. 

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