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"Weak Demand" Does Little to Deter Keystone XL Support

By Daniel J. Graeber | Sun, 18 November 2012 00:00 | 0

The American Petroleum Institute reported that October demand for petroleum products was at its lowest level for any October in 17 years. John Felmy, the group's chief economist, said demand figures were a direct reflection of a sluggish economy.  The Federal Reserve chairman said Friday that tight credit was constricting markets while industrial production for last month was knocked down by Hurricane Sandy. API and a group of U.S. lawmakers say the answer may be in the Keystone XL oil pipeline from Canada, but opponents say that may be "a crazy idea."

"For many months, we’ve seen variations on the same theme: weak demand versus a year ago and some of the weaker demand numbers over the past decade," said Felmy in a statement. "The simple fact is that unemployment remains high and economic growth has been extremely modest. Petroleum demand is reflecting that."

The U.S. economy grew 2 percent during the third quarter, though Federal Reserve Chairman Ben Bernanke said "overly tight lending standards" were impeding growth in the housing market. The Fed, meanwhile, had predicted industrial output would grow 0.2 percent, but output instead contracted 0.4 percent in part because of $50 billion megastorm Sandy. Sandy also took a toll on U.S. unemployment figures.

API said petroleum deliveries for October, a measure of overall demand, were down 2.1 percent compared to the same time last year. While demand was down to its lowest level for any October since 1995, API said crude oil production for October was at its highest level since 1994. Production in North Dakota topped 700,000 barrels per day for the third straight month and was twice the October 2011 levels.

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A summer report from the U.S. Energy Department found pipeline infrastructure wasn't able to keep up with crude oil production in North Dakota, prompting a surge in interest in delivering oil from the Bakken formation there by rail. The American Association of Railroads said rail deliveries of petroleum products were up 45.5 percent for the week ending Nov. 10 when compared to the same week in 2011.

This week, API described pipelines, however, as the "safest way to transport crude oil" in the country. The group said "thousands" of Americans could find jobs "immediately" if U.S. President Barack Obama approves the Keystone XL pipeline, designated for Canadian crude oil imports. A group of nine Democrat and nine Republican senators, meanwhile, said using more regional reserves would not only create thousands of jobs, but shield the U.S. energy sector from any potential oil shock from the Middle East.

Obama yielded to Nebraska lawmakers who expressed concern about the pipeline's route through their state. TransCanada, the project company, is already building a domestic leg of the pipeline for refineries along the southern U.S. coast. A report from the International Energy Agency, meanwhile, stated the United States is on pace to pass Saudi Arabia in terms of oil production. Considering the API's numbers on slumping demand and the subsequent sea change in oil geopolitics, an economic case could potentially be made against Keystone XL.

A coalition of Keystone XL opponents, planning a mass rally Sunday in front of the White House, said the project is "a crazy idea."

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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