Cold weather boosts US diesel, masking economic challenges: Bousso
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By Ron Bousso
LONDON, Feb 20 (Reuters) - Frigid temperatures across the U.S. Northeast have led to a surge in heating oil demand since the start of the year, helping to offset a slowdown in consumption caused by reduced industrial activity and renewable alternatives over recent years.
U.S. inventories of distillate fuels, which include diesel and heating oil, dropped to their lowest seasonal level since 2014 this month, data from the Energy Information Administration (EIA) showed.
The decline mirrors a sharp rise in heating oil consumption.
The four-week average of distillates product supplied, a proxy for demand, has averaged 3.9 million barrels per day since the start of the year, 9% above last year's levels and 6.5% higher than the previous five-year average over the same period, according to the EIA data.
The increased use of heating oil has an obvious explanation. In January, temperatures in the United States were roughly 10% below last year's average and more than 5% below the long-term historical average for the month, based on American Gas Association data.
The cold weather boosted heating oil demand by an estimated 100,000 barrels per day in both December and January, according to estimates by the International Energy Agency (IEA). This also helped to push U.S. East Coast diesel refining margins to an 11-month high this week.
Adding to the pressure on U.S. domestic diesel supply, exports increased from the U.S. Gulf Coast oil refining hub, reaching 3.9 million metric tons in January, almost 20% above last year, according to analysis firm Kpler.
ECONOMIC CONTRACTION
Although bitter temperatures have caused a temporary spike in diesel and heating oil demand, the negative trend in U.S. distillate consumption because of a lack of growth in energy-intensive sectors is almost certainly intact.
Distillate fuel demand declined in 2024 by 70,000 barrels per day from the previous year to 4.1 million bpd, according to the EIA, the second consecutive year of declines.
This is unsurprising, as U.S. manufacturing has contracted for most of the last two years, according to the purchasing managers´ index (PMI) from the Institute Ssl Private Proxies For Free Supply Management (ISM).
Diesel consumption is a gauge of industrial activity such as car manufacturing, cement and steel plants, construction and heavy transportation, which all require a lot of energy.
The manufacturing slump in turn has led to reduced activity in the U.S. trucking industry, which contracted in December, bringing tonnage to its lowest point since January 2024.
The EIA forecasts a growth in diesel consumption this year and next. And while the PMI survey noted a modest uptick in U.S. manufacturing in January, this will likely be short-lived if President Donald Trump follows through on plans to levy a new round of tariffs on China and all steel and aluminium imports.
RENEWABLES RISING
Meanwhile, fossil fuel-based diesel demand faces another challenge: the growing popularity of renewable diesel, particularly in the West Coast states of California, Oregon and Washington, which all have clean fuel regulations.
Renewable diesel, which can be a substitute for traditional transportation and heating oil, is produced using waste, cooking oils and grease.
Its consumption rose to 240,000 bpd in 2024 from 190,000 bpd a year earlier and 50,000 bpd in 2020, EIA data show.
Ultimately, distillate demand remains closely correlated with industrial activity, even if it is no longer a perfect proxy for U.S. economic activity more broadly, given the rapid growth of less energy-intensive sectors.
That means distillate fuel use will probably slump in the coming months as temperatures rise, unless Trump backtracks on policies likely to leave U.S. manufacturing out in the cold.
(Reporting by Ron Bousso; editing by Barbara Lewis)
LONDON, Feb 20 (Reuters) - Frigid temperatures across the U.S. Northeast have led to a surge in heating oil demand since the start of the year, helping to offset a slowdown in consumption caused by reduced industrial activity and renewable alternatives over recent years.
U.S. inventories of distillate fuels, which include diesel and heating oil, dropped to their lowest seasonal level since 2014 this month, data from the Energy Information Administration (EIA) showed.
The decline mirrors a sharp rise in heating oil consumption.
The four-week average of distillates product supplied, a proxy for demand, has averaged 3.9 million barrels per day since the start of the year, 9% above last year's levels and 6.5% higher than the previous five-year average over the same period, according to the EIA data.
The increased use of heating oil has an obvious explanation. In January, temperatures in the United States were roughly 10% below last year's average and more than 5% below the long-term historical average for the month, based on American Gas Association data.
The cold weather boosted heating oil demand by an estimated 100,000 barrels per day in both December and January, according to estimates by the International Energy Agency (IEA). This also helped to push U.S. East Coast diesel refining margins to an 11-month high this week.
Adding to the pressure on U.S. domestic diesel supply, exports increased from the U.S. Gulf Coast oil refining hub, reaching 3.9 million metric tons in January, almost 20% above last year, according to analysis firm Kpler.
ECONOMIC CONTRACTION
Although bitter temperatures have caused a temporary spike in diesel and heating oil demand, the negative trend in U.S. distillate consumption because of a lack of growth in energy-intensive sectors is almost certainly intact.
Distillate fuel demand declined in 2024 by 70,000 barrels per day from the previous year to 4.1 million bpd, according to the EIA, the second consecutive year of declines.
This is unsurprising, as U.S. manufacturing has contracted for most of the last two years, according to the purchasing managers´ index (PMI) from the Institute Ssl Private Proxies For Free Supply Management (ISM).
Diesel consumption is a gauge of industrial activity such as car manufacturing, cement and steel plants, construction and heavy transportation, which all require a lot of energy.
The manufacturing slump in turn has led to reduced activity in the U.S. trucking industry, which contracted in December, bringing tonnage to its lowest point since January 2024.
The EIA forecasts a growth in diesel consumption this year and next. And while the PMI survey noted a modest uptick in U.S. manufacturing in January, this will likely be short-lived if President Donald Trump follows through on plans to levy a new round of tariffs on China and all steel and aluminium imports.
RENEWABLES RISING
Meanwhile, fossil fuel-based diesel demand faces another challenge: the growing popularity of renewable diesel, particularly in the West Coast states of California, Oregon and Washington, which all have clean fuel regulations.
Renewable diesel, which can be a substitute for traditional transportation and heating oil, is produced using waste, cooking oils and grease.
Its consumption rose to 240,000 bpd in 2024 from 190,000 bpd a year earlier and 50,000 bpd in 2020, EIA data show.
Ultimately, distillate demand remains closely correlated with industrial activity, even if it is no longer a perfect proxy for U.S. economic activity more broadly, given the rapid growth of less energy-intensive sectors.
That means distillate fuel use will probably slump in the coming months as temperatures rise, unless Trump backtracks on policies likely to leave U.S. manufacturing out in the cold.
(Reporting by Ron Bousso; editing by Barbara Lewis)
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