COLUMN-U.S. diesel consumption falls as economy slows: Kemp

By John Kemp LONDON, March 1 (Reuters) - U.S. consumption of diesel and other distillate fuel oils ended last year at the slowest rate for a decade in response to the slowdown in manufacturing and freight activity, government data released on Tuesday showed. The volume of distillate fuel oil supplied to the domestic market, a proxy for consumption, averaged 3.7 million barrels per day in December 2022, according to the U.S. Energy Information Administration (EIA). The volume of distillates supplied was down from 4.0 million barrels per day in the same month a year earlier and the slowest for the time of year since 2012 (“Petroleum supply monthly”, EIA, February 28). Nearly 80% of distillates are used in freight transport, manufacturing and construction, so fuel consumption is closely geared to the manufacturing and freight cycle. Growth in both manufacturing activity and distillate consumption peaked in the first half of 2021 as the economy rebounded after the first wave of the pandemic. Since then, growth in manufacturing production and distillate use has been slowing and both turned negative in the final months of 2022.

Chartbook: U.S. distillate stocks and crude output

U.S. manufacturing activity contracted in every month between November 2022 and February 2023, according to monthly business surveys conducted by the Institute for Supply Management (ISM). In the three months from December to February, the average ISM index was in only the 17th percentile for all similar periods since 1980, down from the 91st percentile at the end of 2021. Distillate consumption also fell below prior-year levels in six of the nine months between April and December 2022 as demand dropped. Distillate growth slowed to the 26th percentile in the three months from October to December, down from the 80th percentile at the end of 2021. Slower consumption created some scope to stabilise depleted distillate inventories towards the end of 2022. Nonetheless, inventories ended the year at 119 million barrels, the lowest for the time of year since 2000 and before that 1989. More timely but less comprehensive weekly statistics show stocks rebuilding further in the first two months of 2023. But inventories remain significantly below the long-term average, which means prices are likely to rise again rapidly if manufacturing activity strengthens again in the next few months.

U.S. OIL PRODUCTION U.S. crude and condensates production fell by 276,000 barrels per day in December compared with November - most likely as a result of the exceptionally cold weather causing well freeze-offs. The largest decline came from the Lower 48 states (-264,000 b/d), but there was also a decline from the Gulf of Mexico (-14,000 b/d), while output from Alaska was flat (+2,000 b/d). Notwithstanding the impact of poor weather, growth seems to have been decelerating slightly since November, as oil prices and drilling rates have fallen. Production in the final three months of 2022 was only 634,000 b/d (+5%) higher than in the same period at the end of 2021. The U.S. Energy Information Administration forecasts growth will slow further to just 200,000 b/d (+2%) by the fourth quarter of 2023 (“Short-Term Energy Outlook”, EIA, February 7). The fall in oil prices since the second quarter of 2022 is already filtering through into a fall in the number of rigs drilling and will cause production growth to slow through the rest of this year.

Related columns: - U.S. oil drilling falls in response to lower prices (February 27, 2023) - Depleted distillates threaten to reignite inflation (February 23, 2023) - U.S. diesel stocks start the year critically low
(February 2, 2023)

John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Barbara Lewis)

Reuters

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COLUMN-U.S. diesel consumption falls as economy slows: Kemp

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