US oil demand and import sources: Key factors affecting the future

With high oil prices and the economic recession, both US and global oil demand declined in 2008. In the United States, domestic crude oil production, refinery outputs, finished product net imports, and crude oil imports all declined from prior year levels.
Historically, US petroleum demand peaked in 2005 at 20.8 mm bpd, remained relatively flat in 2006-07, and then dropped to 19.4 mm bpd in 2008. As a general rule, US petroleum product demand tends to be met first by domestic refinery output, with finished product imports satisfying the remainder. (This is something of an oversimplification; sometimes nearer and cheaper product imports from Canada, Mexico, the Caribbean, or even Europe displace US refinery production.)

US refinery inputs, in turn, tend to be satisfied by domestic crude oil production first, and imports second. Consequently, we tend to think of the requirement for crude oil imports to the United States as largely the remainder of US refinery crude oil requirements less domestic crude production. Any crude oil imports over or under this level tend to make crude oil inventories (stocks) rise or fall.
In 2008, US crude oil refinery inputs dropped by 511,000 bpd, and domestic crude oil production decreased by 109,000 bpd, leaving a decrease in the "need" for crude oil imports of 402,000 bpd. However, crude oil imports fell by only 275,000 bpd, and crude oil stocks grew. (Crude oil exports are negligible.)

The sources of crude oil
About half of US supply has been coming from the Western Hemisphere (Canada, Mexico and South America combined). Canada has generally been a growing source of US imports since the early 1980's, and in 2008 represented about 40 % of Western Hemisphere supply. At the same time, imports from Mexico and Venezuela, which averaged about 57 % share of Western Hemisphere crude supply from 2000-2005 to the US, have been declining. In 2008, these two countries were down to about 46 % of Western Hemisphere supply.
Brazilian supplies have increased and are expected to continue to increase in the future, but represented less than 5 % of Western Hemisphere crude oil imports to the US in 2008. Outside the Western Hemisphere, supplies from Europe have declined with North Sea production, while supplies from Africa (e.g., Algeria and Angola) have grown. The Middle East remains a major source of supply to the US, providing over 24 % of our crude imports in 2008.

Turning to 2009, crude oil imports continued to decline during the first quarter 2009, dropping 235,000 bpd from first quarter 2008. One significant change from the longer term trend has been a decline in crude oil imports sourced from the Middle East, mainly reflecting a decline in imports from Saudi Arabia and Iraq. US crude imports from Saudi Arabia dropped to 944,000 bpd in March 2009, their lowest level since November 1988.
Declines in African imports also stand out. Most of the first quarter decline in imports from Africa stemmed from the loss of supplies from Nigeria, which dropped almost 500,000 bpd as political unrest continued to interrupt production in that country. Increases from Angola and other African countries helped to counter some of that loss. Total US crude imports from members of the Organization of the Petroleum Exporting Countries (OPEC) fell below 5 mm bpd in both February and March, the first two consecutive months below that level since 2006.

Historically, economic recovery has led to a rebound in demand for oil. As the US comes out of its current economic downturn, the level of crude oil imports will depend on several key factors.
First, US crude oil production is expected to increase, mainly due to the start of operations at several major platforms in the deepwater Gulf of Mexico.
Second, at least a modest portion of any demand growth will be served by biofuels given the steadily increasing mandate for their use required by the updated renewable fuel standard established by the Energy Independence and Security Act of 2007.
Third, demand growthresulting from an improved economy will to some extent be offset by requirements for increased fuel efficiency of new vehicles, an effect that will tend to increase over time as the existing vehicle fleet turns over.

Our future crude oil import sources will depend on production trends in the different regions, as well as the mix of oil products demanded by US consumers, which affects the attractiveness of different crude streams to US refiners. With respect to production trends, it is clear that OPEC members in the Middle East, who have absorbed the bulk of production cuts made in the present global economic downturn and are also adding to their production capacity, are well-situated to supply a major portion of the oil that would be required to meet growing global oil demand as the world economy recovers.
Over the longer term, decisions made regarding the pace of development in the Canadian oil sands and Brazil's major offshore resources will also have important implications for the sourcing of US crude oil imports.