U.S. manufacturing is experiencing minimal growth, which is impacting diesel consumption. The sector's output has essentially remained unchanged compared to a year ago, with no significant net growth since 2018. The Federal Reserve estimates that production increased by 0.9% in May after consecutive declines in April and March, but the output remains virtually unchanged from a year earlier [c9aa1498].
The manufacturing sector has recovered from disruptions caused by the trade war with China in 2018 and the pandemic in 2020, but it has not surpassed pre-disruption levels. The value added by the manufacturing sector in the economy as a whole fell from 11.0% to 10.2% between 2018 and 2023 [c9aa1498] [ce74740a].
The volume of distillate oil sold on the domestic market has barely increased since 2018, and the U.S. Energy Information Administration predicts no significant growth in distillate demand in 2024 and 2025 [c9aa1498] [ce74740a].
The decline in diesel consumption reflects the ongoing challenges faced by the oil and gas industry due to the impact of economic conditions on fuel consumption patterns. Despite the recent rebound in U.S. manufacturing activity, diesel demand remains weak, indicating a tepid recovery [7f47787e] [643877db] [ce74740a]. The weak diesel consumption is a concerning signal for the industry, as it reflects weakening refining margins globally [643877db] [ce74740a]. The decline in diesel demand serves as a broader indicator of economic health and suggests ongoing challenges for the oil and gas industry [643877db] [ce74740a].
The sluggish performance of the manufacturing sector has dampened overall energy consumption, particularly for distillates such as diesel. Consumption of distillates has been lackluster, with volumes supplied under 3.7 million barrels per day in March 2024, the lowest for the time of year since 1998 [7f47787e] [71d0bae3] [ce74740a]. Diesel prices have been falling faster than crude, narrowing the gross refinery margin or crack spread. Traders expect diesel supplies to remain plentiful for the next few months [7f47787e] [ce74740a].
The decline in diesel consumption and the sluggish performance of the manufacturing sector have led to narrowing refining margins globally. Diesel prices have been falling faster than crude, which has impacted the gross refinery margin or crack spread. Traders expect diesel supplies to remain plentiful for the next few months [7f47787e] [643877db] [ce74740a].
Despite the weak diesel consumption, diesel inventories in the U.S. and Europe remain tight, leaving the supply situation vulnerable to shocks [e3ebfd0b] [ce74740a]. However, traders expect diesel supplies to remain plentiful for the next few months, indicating a potential oversupply [7f47787e] [ce74740a].
The decline in diesel consumption and the tepid recovery of the manufacturing sector highlight the ongoing challenges faced by the oil and gas industry. These challenges are further underscored by the tight diesel inventories in the U.S. and Europe, which leave the supply situation vulnerable to shocks [e3ebfd0b] [ce74740a]. Traders and investors should closely monitor these trends to anticipate market shifts [643877db] [ce74740a].