Biggest Drop in U.S. Oil Demand in 26 Years

U.S. oil demand during the first half of 2008 fell by an average 800,000 barrels per day (bpd) compared with the same period a year ago, the biggest volume decline in 26 years, the Energy Information Administration said on Tuesday.

In its latest monthly energy forecast, the EIA said the huge drop in demand was due to slower U.S. economic growth and the impact of high petroleum prices.

The drop in U.S. oil demand helped offset a 1.3-million bpd increase in petroleum consumption in nonindustrial countries during the first half of the year.

As a result, preliminary data shows that global oil consumption rose by 500,000 bpd in the six-month period, the EIA said.

The Energy Department's analytical arm sees continued falling oil demand, and for the first time is predicting that U.S. petroleum consumption in 2009 will be lower than this year, which would mark a drop in annual demand for three years straight.

"Total U.S. petroleum and other liquids consumption is projected to shrink by almost 500,000 (bpd) in 2008 based on prospects for a weak economy and continuing high crude oil and product prices extending into 2009," the EIA said.

U.S. daily oil use fell by a slight 7,000 barrels last year and is forecast to decline by 480,000 barrels this year and then by another 120,000 barrels next year.

The EIA is now forecasting that U.S. oil demand in 2009 will average 20.08 million bpd, the lowest level since 2003.

High gasoline prices have cut into U.S. demand, but the EIA expects lower pump costs through December than previously forecast, with gasoline averaging $3.81 a gallon in the fourth quarter compared with the record $4.11 reached in July.

However, U.S. consumers will be hit with much higher heating fuel costs this winter, the agency warned.

The average residential price for heating oil during the upcoming heating season, which runs from October through March, is forecast to be $4.34 a gallon, up 31 percent from last winter.

Households that use natural gas as their heating fuel will pay an average $15.58 per thousand cubic feet of gas, about 22 percent more than last winter, the EIA said.