NEW YORK (Reuters) - The steep declines in U.S. oil demand will likely slow down in the second half of 2009, but a rebound higher is unlikely next year as the economic crisis continues to damp consumer behavior.
Consumption in the world's largest economy has been dropping steadily since the third quarter of 2007, with the decline deepening in 2008 as the economic news grew bleaker.
Analysts said the steepest declines may have already occurred, with the slowdown easing somewhat next year, especially when 2009 demand levels begin to be compared with already weak 2008 figures.
"The pace of contraction may slow a bit because the baseline -- starting around the second half of 2009 -- is going to be much lower. So we'll have less year-on-year contraction," said Antoine Halff, vice president of Newedge USA.
"But it looks like we'll contract further before we bounce back up," he said.
The demand drop began to pick up more steam over the summer as oil shot to a record high over $147 a barrel in July, prompting consumers to cut back on fuel use.
Since then, crude prices have tumbled to $40 as the economy slowed, sending retail gasoline prices down from over $4 a gallon to $1.78 a gallon last week, lending some support to demand at the pumps.
"If your current push down on demand is all about unemployment and the real economy, at some point unemployment will reach a high level and then stop growing. That alone will allow gasoline demand to level," said Jan Stuart, global oil economist for UBS Securities.
"It's not to say that in the second half of the year demand will grow, it is that it will stop falling."
Analysts said that further pressure on demand, particularly for diesel, could come as falling consumption of goods hits the trucking and shipping industries and as an end to the Southern Hemisphere winter cuts fuel exports to Latin America.
"I think distillates had been supported by exports to Latin America, and those exports have slowed now that winter demand (there) is over," said Halff.
"The movement of (transport) ships is sharply down so that suggests lower demand for diesel domestically," he added.
Some of that decline could be offset in the near-term, however, by higher U.S. heating oil demand this winter.
The figures this year have been dramatic, with the United States on track for the third annual decline in overall demand as well as its first annual decline in gasoline demand since 1991.
In the third quarter, U.S. oil demand dropped to 1.9 million bpd below the same period in 2007, according to the U.S. Energy Information Administration. The agency expects that deficit to narrow to just over 1 million bpd in the fourth quarter of this year.
The EIA expects overall U.S. demand to fall by 1.2 million bpd in 2008 and 200,000 bpd in 2009.
"I don't think we see a rebound in demand until the second half of 2009," said Stephen Schork, editor of The Schork Report in Philadelphia. "I don't think people really appreciate how ugly it is out there."
Consumption in the world's largest economy has been dropping steadily since the third quarter of 2007, with the decline deepening in 2008 as the economic news grew bleaker.
Analysts said the steepest declines may have already occurred, with the slowdown easing somewhat next year, especially when 2009 demand levels begin to be compared with already weak 2008 figures.
"The pace of contraction may slow a bit because the baseline -- starting around the second half of 2009 -- is going to be much lower. So we'll have less year-on-year contraction," said Antoine Halff, vice president of Newedge USA.
"But it looks like we'll contract further before we bounce back up," he said.
The demand drop began to pick up more steam over the summer as oil shot to a record high over $147 a barrel in July, prompting consumers to cut back on fuel use.
Since then, crude prices have tumbled to $40 as the economy slowed, sending retail gasoline prices down from over $4 a gallon to $1.78 a gallon last week, lending some support to demand at the pumps.
"If your current push down on demand is all about unemployment and the real economy, at some point unemployment will reach a high level and then stop growing. That alone will allow gasoline demand to level," said Jan Stuart, global oil economist for UBS Securities.
"It's not to say that in the second half of the year demand will grow, it is that it will stop falling."
Analysts said that further pressure on demand, particularly for diesel, could come as falling consumption of goods hits the trucking and shipping industries and as an end to the Southern Hemisphere winter cuts fuel exports to Latin America.
"I think distillates had been supported by exports to Latin America, and those exports have slowed now that winter demand (there) is over," said Halff.
"The movement of (transport) ships is sharply down so that suggests lower demand for diesel domestically," he added.
Some of that decline could be offset in the near-term, however, by higher U.S. heating oil demand this winter.
The figures this year have been dramatic, with the United States on track for the third annual decline in overall demand as well as its first annual decline in gasoline demand since 1991.
In the third quarter, U.S. oil demand dropped to 1.9 million bpd below the same period in 2007, according to the U.S. Energy Information Administration. The agency expects that deficit to narrow to just over 1 million bpd in the fourth quarter of this year.
The EIA expects overall U.S. demand to fall by 1.2 million bpd in 2008 and 200,000 bpd in 2009.
"I don't think we see a rebound in demand until the second half of 2009," said Stephen Schork, editor of The Schork Report in Philadelphia. "I don't think people really appreciate how ugly it is out there."
