Tesoro Economist: No Recovery In US Oil Demand This Year
Dow Jones

NEW YORK -(Dow Jones)- U.S. oil demand is unlikely to rebound this year, though that won't result in lower crude prices, Tesoro Corp.'s (TSO) chief economist said Thursday.

"People have changed their driving patterns because of high prices," said Lynn Westfall, chief economist at the San Antonio refiner. "The earliest would be next year sometime before we might see a reversal."

U.S. gasoline demand is down 3.2% in the month ending July 25 from a year ago, according to the Department of Energy. Rising unemployment is also hitting consumption, while a shift toward more fuel-efficient cars is likely to erase some demand permanently, Westfall said in a conference call with analysts.

Tesoro reported second-quarter earnings of 3 cents a share, beating the average analyst forecast of a loss of 6 cents a share. The company, which operates seven refineries in the western U.S., has suffered as high oil prices have cut into profits.

"We had already planned a lot of our capital plans to be able to do the best we can ... in a low-margin environment; we see that continuing for the foreseeable future," Westfall said.

The company is retrenching to weather a tough period with no clear endpoint for the refining industry. Tesoro has reduced oil inventories by about 20% to 27.6 million barrels at the end of June.

"Management was able to tighten the belt sufficiently to weather a challenging environment," wrote Michael LaMotte, an analyst with JPMorgan, in a note. " However, conditions are not improving yet."

-By Brian Baskin, Dow Jones Newswires; 201-938-2062; brian.baskin@dowjones.com

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  07-31-08 0955ET
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