Kemp: Time For A Good Sweating In The Oil Market

US demand for petroleum products has experienced a decline over the last 8 years as soaring oil prices have forced consumers to become more efficient and seek cheaper alternatives.

John Kemp is a Reuters market analyst. The views expressed are his own

LONDON, Sept 29 (Reuters) - U.S. demand for petroleum products has experienced an unprecedented and broad-based decline over the last eight years as soaring oil prices have forced consumers to become more efficient and seek cheaper alternatives.

Consumption of oil-based products has fallen in every major category - from gasoline, diesel and jet kerosene to heating oil, fuel oil, petrochemical feedstock, petroleum coke and asphalt, according to the U.S. Energy Information Administration.

In every case, consumption has fallen in absolute terms and the decline is even steeper compared with the growth in population and the size of the economy since 2005.

The extent of demand destruction varies from a relatively small reduction in motor gasoline and diesel to steep falls in the use of heavy fuel oil, petroleum coke, asphalt and oil-based products as feedstock for making petrochemicals (http://link.reuters.com/nan92w).

The precise reasons also vary. Distillates, heavy fuel oil and petroleum coke have been replaced by cheaper and cleaner-burning gas in power generation and heating. Asphalt has been hit by a squeeze on state and local government budgets. Oil-based petchem feedstocks have been replaced by cheaper natural gas and condensates.

In some cases, government regulations have cut demand by requiring more-efficient vehicles or mandating the use of an increasing amount of non-petroleum fuels such as ethanol. In others, consumers and businesses have sought to limit the impact of rising fuel bills by switching to smaller vehicles or making fewer journeys.