Use of Oil
Crude oil and other liquids produced from fossil fuels are refined into petroleum products that people use for many different purposes. Biofuels, such as ethanol and biodiesel, are also used as petroleum products, mainly in mixtures with gasoline and diesel fuel.
Petroleum is the largest U.S. energy source. We use petroleum products to propel vehicles, to heat buildings, and to produce electricity. In the industrial sector, the petrochemical industry uses petroleum as a raw material (a feedstock) to make products such as plastics, polyurethane, solvents, and hundreds of other intermediate and end-user goods.
In 2017, U.S. petroleum consumption averaged about 19.96 million barrels per day (b/d), which included about 1 million b/d of biofuels.
· Transportation—14.02 million barrels per day (b/d)—71%
· Industrial—4.76 million b/d—24%
· Residential—0.52 million b/d—3%
· Commercial—0.47 million b/d—2%
· Electric power—0.10 million b/d—1%
Petroleum products consumed in 2017
|
Product |
Annual consumption (million barrels per day) |
|
Finished motor gasoline1 |
9.327 |
|
Distillate fuel oil (diesel fuel and heating oil)1 |
3.932 |
|
Hydrocarbon gas liquids (HGL) |
2.643 |
|
Kerosene-type jet fuel |
1.682 |
|
Still gas |
0.690 |
|
Petrochemical feedstocks |
0.351 |
|
Asphalt and road oil |
0.351 |
|
Residual fuel oil |
0.342 |
|
Petroleum coke |
0.316 |
|
Miscellaneous products and other liquids2 |
0.130 |
|
Lubricants |
0.121 |
|
Special napthas |
0.052 |
|
Aviation gasoline |
0.011 |
|
Kerosene |
0.005 |
|
Waxes |
0.005 |
|
Total petroleum products |
19.958 |
Gasoline is the most consumed petroleum product in the United States. In 2017, consumption of finished motor gasoline averaged about 9.33 million b/d (392 million gallons per day), which was equal to about 47% of total U.S. petroleum consumption.
Distillate fuel oil is the second most-consumed petroleum product in the United States. Distillate fuel oil includes diesel fuel and heating oil. Diesel fuel is used in the diesel engines of heavy construction equipment, trucks, buses, tractors, boats, trains, some automobiles, and electricity generators. Heating oil, also called fuel oil, is used in boilers and furnaces for heating homes and buildings, for industrial heating, and for producing electricity in power plants. Total distillate fuel oil consumption in 2017 averaged about 3.93 million b/d, which was equal to 20% of total U.S. petroleum consumption.
Hydrocarbon gas liquids (HGL), the third most-used category of petroleum in the United States, include propane, ethane, butane, and other hydrocarbon gas liquids that are produced at natural gas processing plants and oil refineries. HGL consumption in 2017 averaged about 2.64 million b/d. The petrochemical industry uses HGL as feedstock for making many products.
Propane, a heavily consumed HGL, is also used in homes for space heating and water heating, for clothes drying, for cooking, for heating greenhouses and livestock housing, for drying crops, and as a transportation fuel.
Jet fuel is the fourth most-used petroleum product in the United States. Jet fuel consumption averaged about 1.68 million b/d in 2017.
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Total world consumption of petroleum in 2015 was about 93 million b/d. The five largest petroleum-consuming countries in 2015 and their shares of total world petroleum consumption
· United States—20.5%
· China—12.6%
· Japan—4.3%
· India—4.3%
· Russia—3.7%
The U.S. Energy Information Administration projects in the Annual Energy Outlook 2018 Reference case that petroleum and other liquids will continue to contribute the largest share of total U.S. energy consumption through 2050, although the share in 2050 will be slightly lower than the share in 2017. Also in the Reference case, petroleum continues as the main energy source for the transportation sector, but the volume of petroleum consumption in the transportation sector is projected to be about 14% lower in 2050 than the volume in 2017.
Oil Prices and Outlook:
Crude oil prices are determined by global supply and demand. Economic growth is the biggest factor that affects demand—growing economies require energy. The petroleum products made from crude oil and other hydrocarbon liquids account for about a third of total world energy consumption.
Seasonal changes in demand for petroleum products can influence the supply and demand balance for crude oil and its market price. For example, crude oil markets tend to be stronger in the fourth quarter of the year—when global demand for heating oil is boosted both by cold weather and by inventory building—and weaker in late winter as demand for heating oil falls with warmer weather.
The Organization of the Petroleum Exporting Countries (OPEC) can have a significant influence on prices by setting production targets for its members. OPEC includes some of the world's most oil-rich countries. Together, these countries control about 73% of the world's total proved oil reserves, and in 2016, they produced 44% of the world's total crude oil.
OPEC attempts to manage the oil production of its member countries by setting crude oil output targets, or quotas, for each member (except for Iraq, which does not have a current target). Compliance of member countries with OPEC quotas is mixed because production decisions are ultimately in the hands of the individual countries.
In general, three main factors determine how effectively OPEC can influence oil prices:
· How unwilling or unable consumers are to move away from using oil
· How competitive non-OPEC producers become when oil prices change
· How efficiently OPEC producers can supply oil compared with non-OPEC producers
The difference between market demand and supply from non-OPEC sources is often referred to as the call on OPEC.
OPEC also maintains the world's entire spare crude oil production capacity. Saudi Arabia, the largest oil producer within OPEC and one of the world's largest oil exporters, historically has had the largest share of the world's spare production capacity. Developing and maintaining idle spare production capacity is generally not cost-effective for international oil companies (IOC) because the IOC business model maximizes revenue by producing oil as long as the price of selling the oil is higher than the cost of getting an additional barrel of oil to market. OPEC spare capacity provides an indicator of the world oil market's ability to respond to potential crises that reduce oil supplies.
Geopolitical events and severe weather that disrupt the supply of crude oil and petroleum products to market can affect crude oil and petroleum product prices. These events may create uncertainty about future supply or demand, which can lead to higher volatility in prices. The volatility of oil prices is tied to the low responsiveness, or inelasticity, of supply and demand to price changes in the short term. Crude oil production capacity and the equipment that uses petroleum products as its main source of energy are relatively fixed in the near term. It takes years to develop new supply sources or to vary production, and when prices rise, switching to other fuels or increasing equipment fuel efficiency in the near term is hard for consumers to do. These conditions may require a large price change to rebalance physical supply and demand.
Most of the crude oil reserves in the world are located in regions that have been prone to political upheaval or in regions that have had oil production disruptions because of political events. Several major oil price shocks have occurred at the same time that political events caused supply disruptions, most notably the Arab Oil Embargo in 1973–74, the Iranian revolution, the Iran-Iraq war in the 1980s, and the Persian Gulf War in 1990–91. More recently, political events in Iraq, Libya, Nigeria, Syria, and Venezuela have contributed to supply disruptions.
Given the history of oil supply disruptions caused by political events, market participants constantly assess the possibility of future disruptions. In addition to the size and duration of a potential disruption, market participants also consider the availability of crude oil stocks and the ability of other producers to offset a potential supply loss. When spare capacity and inventories are low, a potential supply disruption may have a greater impact on prices than might be expected if only current demand and supply were considered.
Weather also plays a significant role in the supply of crude oil. Hurricanes in the Gulf of Mexico can affect oil production and refinery operations in the Gulf region. As a result, U.S. petroleum product prices may increase sharply as supplies from the Gulf to other regions drop. Severe cold weather can also strain product markets as producers attempt to supply enough of the product, such as heating oil, to consumers in a short amount of time to meet demand. This seasonal demand can also result in higher prices.
Other events such as refinery outages or pipeline problems can also restrict the flow of crude oil and petroleum products to market. These events can lead to a temporary supply disruption that could increase prices.
The influence of any of these factors on crude oil prices tends to be relatively short lived. Once the supply disruption subsides, oil and product flows return to normal, and prices usually return to their previous levels.
Crude oil and petroleum product prices are the result of thousands of transactions taking place simultaneously around the world at all levels of the supply chain, from the crude oil producer to the individual consumer. Oil markets are essentially a global auction—the highest bidder will win the available supply.
Like any auction, the bidder doesn't want to pay too much. When markets are tight (when demand is high and/or available supply is low), the bidder must be willing to pay a higher premium. When markets are loose (demand is low and/or available supply is high), a bidder may choose not to outbid competitors, waiting instead for lower-priced supplies.
Contract arrangements in the oil market cover most crude oil that changes hands. Crude oil is traded in the futures markets. A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future. If oil producers want to sell oil in the future, they can lock in their desired price by selling a futures contract today. Alternatively, if consumers need to buy crude oil in the future, they can guarantee the price they will pay at a future date by buying a futures contract. In addition to oil producers and consumers, futures contracts are also bought and sold by market participants or speculators who do not produce or consume crude oil. These types of traders buy and sell futures contracts in anticipation of price changes, hoping to make a profit from those changes.
Crude oil is also sold in spot transactions, or an on the spot purchase of a single shipment for immediate delivery at the current market price.
Prices in spot markets send a clear signal about the balance of supply and demand. Rising prices indicate that additional supply is needed, and falling prices indicate there is too much supply for current demand. Futures markets also provide information about the physical supply and demand balance as well as the market's expectations.
The large changes in world oil prices in the past decade demonstrate how all of these factors can influence oil prices, and they demonstrate the difficulty in making projections for oil prices. The U.S. Energy Information Administration projects average annual prices for two benchmark crude oil prices—Brent and West Texas Intermediate—in a range of price scenarios in the Annual Energy Outlook. See Table 12 Petroleum and Other Liquids Prices in the Reference caseand in 13 side cases.
Oil and the Environment:
Crude oil is used to make the petroleum products we use to fuel airplanes, cars, and trucks; to heat homes; and to make products such as medicines and plastics. Although petroleum products make life easier, finding, producing, and moving crude oil may have negative effects on the environment. Technological advances in exploration, production, and transportation of oil and enforcement of safety and environmental laws and regulations help to avoid and reduce these effects.
Exploring and drilling for oil may disturb land and marine ecosystems. Seismic techniques used to explore for oil under the ocean floor may harm fish and marine mammals. Drilling an oil well on land often requires clearing an area of vegetation. However, technologies that significantly increase the efficiency of exploration and drilling activities also reduce effects on the environment. Satellites, global positioning systems, remote sensing devices, and 3-D and 4-D seismic technologies make it possible to discover oil reserves while drilling fewer exploratory wells. Mobile and smaller slimhole drilling rigs reduce the size of the area that drilling activities affect. The use of horizontal and directional drilling makes it possible for a single well to produce oil from a much larger area, which reduces the number of wells necessary to develop an oil resource.
An oil production technique known as hydraulic fracturing, or fracking, is used to produce oil from shale and other tightgeologic formations. This technique has allowed the United States to significantly increase domestic oil production and reduce U.S. oil imports. Hydraulic fracturing has some effects on the environment. Fracturing rock requires large amounts of water, and it uses potentially hazardous chemicals to release the oil from the rock strata. In some areas of the country, significant water use for oil production may affect the availability of water for other uses and can potentially affect aquatic habitats. Faulty well construction or improper handling may result in leaks and spills of fracturing fluids.
Hydraulic fracturing also produces large amounts of wastewater that may contain dissolved chemicals and other contaminants, which may require treatment before disposal or reuse. Because of the amount of water used and the complexity of treating some of the wastewater components, treatment and disposal are important and challenging issues. Wastewater is frequently disposed of by injection into deep wells, typically into saltwater aquifers. The injection of wastewater can cause earthquakes that may cause damage and are large enough to be felt.
Most oil spills are the result of accidents at oil wells or on the pipelines, ships, trains, and trucks that move oil from wells to refineries. Oil spills contaminate soil and water and may cause devastating explosions and fires. The federal government and industry are developing standards, regulations, and procedures to reduce the potential for accidents and spills and to clean up spills when they occur.
After the Exxon Valdez oil spill in Prince William Sound, Alaska, in 1989, the U.S. Congress passed the Oil Pollution Act of 1990, which requires all new oil tankers built for use between U.S. ports to have a full double hull. In 1992, the International Maritime Organization also established double-hull standards for new oil tankers in the International Convention for the Prevention of Pollution from Ships (MARPOL). The amount of oil spilled from ships dropped significantly during the 1990s partly because of these double-hull standards.
The Deep Horizon drilling rig explosion and oil spill in the Gulf of Mexico in 2010 prompted the U.S. government and the oil industry to review drilling technologies, procedures, and regulations to reduce the potential for similar accidents to occur. The U.S. government also replaced the Minerals Management Service (MMS), which administered offshore oil and natural gas leases, with the Bureau of Ocean Energy Management (BOEM) and
In response to several major accidents involving trains carrying crude oil, the U.S. Department of Transportation and the Federal Railroad Administration established new standards for railroad tank cars, braking controls, and speed restrictions to reduce the potential for railroad accidents and oil spills.
Oil wells are plugged when they become uneconomic, and the area around the well may be restored. Some old offshore oil rigs are tipped over and left on the sea floor in a Rigs-to-Reefs program. Within a year after a rig is toppled, barnacles, coral, sponges, clams, and other sea creatures cover the rig. These artificial reefs attract fish and other marine life, and they increase fish populations and recreational fishing and diving opportunities.