The impact of substantially higher retail prices has apparently permeated further into consumers’ travel behavior in recent months. The result has been a second-quarter decline in gasoline deliveries. ("Deliveries" is a measure of demand). Specifically, gasoline deliveries fell 0.4 percent for the second quarter compared with a year ago, contrasting with an increase for the first quarter of 0.5 percent. With flat-to-declining deliveries for distillate fuel oil and residual fuel oil, along with an only-modest rise for jet fuel, total petroleum deliveries for the second quarter shrank from year-ago levels by 1.3 percent.
Meanwhile, refiners successfully ramped up production of ultra-low sulfur diesel (ULSD) in June as the Environmental Protection Agency's requirement for refiners and importers kicked in. Beginning June 1, refiners and importers are to produce or import 80 percent of their on-highway diesel at just 15 parts per million of sulfur content. Production of this new, cleaner fuel surged to a daily average of nearly 1.9 million barrels for the month. Successful production at refineries of ULSD, or "clean diesel," is just the beginning of the transition, and government regulations specify that ULSD is to be available at retail by October 15. With the final refinery affected by last year's hurricanes finally returning to more normal operations, gasoline production in June reached an all-time record of nearly 9.2 million barrels per day.
Total imports of crude and products were up 1.9 percent for the first half compared with a year ago, mainly because of a surge in product imports. They averaged 3.52 million barrels per day for the period, up more than 12 percent from a year earlier and second only to those of last year's second half when domestic refining capacity had been hobbled by the impact of hurricanes Katrina and Rita. First-half imports of gasoline reached a new high at 1.26 million barrels per day, 18.8 percent higher than for January-June 2005 and 10.4 percent higher than the last half of 2005.
For the first half of 2006, U.S. crude oil production averaged 5.1 million barrels per day, down 5.6 percent from the first half of 2005, but up 9.2 percent from the last half of 2005 when hurricanes Katrina and Rita had knocked significant amounts of offshore production offline. Although significant restoration of offshore production capacity continues, June's production in the lower 48 was still down 5.5 percent from a year ago. Alaskan production also declined, by 1.1 percent, as technical issues hampered production.
Crude oil inventories ended the second half at 340 million barrels, 10 percent above the five-year average for June. Though gasoline inventories, at 210 million barrels, were about 2 percent below the historical five-year average, other major products were more amply situated. Distillate inventories, rising seasonally, ended June more than 10 percent above the historical average, while kerosine jet and resid inventories exceeded their five-year June averages as well.