7. OIL
issued a proposal in 2018 to allow offshore oil and gas drilling in nearly all US coastal waters. This is unlikely to make a material, immediate impact on production.
Increased products exports are expected due to the sizeable increase in domestic oil and gas production as well as highly efficient and cost-competitive refining economics. Thanks to growing crude oil production and increasing inflows of discounted Canadian crude oil, the Gulf Coast region will continue to drive US refining activity to new export records, particularly to meet growing demand in Asia. Extra refining capacity is expected to come online in the United States, including light crude processing units in Gulf Coast refineries, such as ExxonMobil’s 350 kb/d addition to its Beaumont refinery in 2023. In this time frame, the United States will remain an importer of heavy crudes that suit the configuration of its refineries.
US oil demand has been growing very fast since 2015 to reach 20.8 mb/d in 2018, supported by gasoline demand and the commissioning of new petrochemical projects. Efficiency improvements and slower economic growth will cap the gains from 2020 onwards. Total oil demand is expected to increase from 20.8 mb/d in 2018 to 21.1 mb/d in 2024.
Improving fuel economy will contribute to a contraction in gasoline demand. The Corporate Average Fuel Economy (CAFE) standards, introduced in 2012, mandate a 3.8% annual improvement in passenger cars’ fuel economy to 2025. In 2018, CAFE standards were reviewed and the administration proposed updating them under the Safer Affordable Fuel-Efficient (SAFE) Vehicles proposal, which fixes post-2022 targets at the 2021 level, rather than requiring further improvements (see Chapter 4, “Energy Efficiency”).
The petrochemical industry has been and will continue to be the major source of oil demand growth. LPG and ethane will be the fastest-growing components, supported by strong US demand for ethane. Jet fuel demand is also expected to post robust growth. On average, total demand is expected to grow by 0.3% per year over the forecast period.
Prices and taxes
There are no price controls on oil products in the United States. Fuel taxes are applied at the federal, state and sometimes even local levels, and several other programmes provide subsidies such as the Low Income Home Energy Assistance Program.
Among IEA countries, the United States has the lowest prices for diesel fuel and gasoline, and ranks sixth-lowest for light fuel oil7 prices. Low taxation levels and the fact that oil commodities are traded globally in US dollars make US oil prices very responsive to fluctuations in domestic supply and demand and to international market developments. Aside from favourable taxation structures, the country has the most competitive and fully developed market for refined products in the world, which allows it to operate at very low operational costs, mainly along the US Gulf Coast.
Similar trends have been observed for diesel, gasoline and light fuel oil prices in the last ten years (Figure 7.10). Following the 2008 financial crisis and the sharp fall in crude oil prices, the price for diesel dropped sharply by 35%, for gasoline by 22% and for light fuel
7 Light fuel oil for end-use prices generally comprises light distillate fuel oils. Light fuel oil can be used for heating purposes.
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7. OIL
oil by 28%. From 2009 onwards, prices started to pick up again to reach pre-crisis levels in 2011 and stabilised at these levels for about three years.
Figure 7.10 US oil fuel prices, 2008-18
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Automotive diesel
Gasoline (95 RON)*
Light fuel oil
Tax price - automotive diesel
Tax price - gasoline (95 RON)”
Tax price - light fuel oil
IEA (2019). All rights reserved.
Oil fuel prices have increased since 2016 following the growth in global crude oil prices.
* 95 RON refers to premium unleaded.
Note: The oil fuel prices presented are average retail prices.
Source: IEA (2018a), Energy Prices and Taxes 2018, www.iea.org/statistics/.
From the second half of 2014, and following the drop in crude oil price, oil fuel prices started to decline again. The diesel price almost halved down to the lowest point at USD 0.55/litre8 in the first quarter of 2016. The gasoline price hit its lowest point at USD 0.57/litre in the first quarter of 2016, compared with almost USD 0.95/litre in early 2014. The light fuel oil price halved down to USD 0.54/litre in early 2016. Over the last two years, average prices have increased to close to pre-crisis levels. In the third quarter of 2018, the diesel price was USD 0.86/litre, the gasoline price bounced back up to USD 0.84/litre and the light fuel oil price increased again to USD 0.90/litre. The United States has among the lowest tax rates for all oil products (Figure 7.11).
8 The US gallon is defined as 3.785 litres.
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IEA. All rights reserved.
7. OIL
Figure 7.11 Oil fuel prices in IEA member countries, second quarter of 2018
Automotive diesel fuel
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Note: Premium unleaded gasoline data are not available for Japan.
Light fuel oil
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IEA (2019). All rights reserved.
The United States has the lowest diesel and gasoline prices with the second-lowest taxes among IEA countries, and the sixth-lowest fuel oil price with by far the lowest tax component.
Note: No light fuel oil data for Australia, Hungary, Mexico, New Zealand, the Slovak Republic and Sweden. Source: IEA (2018a), Energy Prices and Taxes 2018, www.iea.org/statistics/.
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IEA. All rights reserved.