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US diesel demand is falling despite economic growth- EIA

U.S. diesel demand will drop through 2024 despite growing economic activity, extending a recent break from tradition where demand for the freight fuel grows with GDP, the Energy Information Administration forecast.

Historically, GDP has grown in tandem with manufacturing activity and diesel consumption as more goods orders increase the need for freight transport, the main driver of diesel demand.

After a brief spurt in consumer spending on goods during peak pandemic-related restrictions, however, service sector production has been the primary driver of GDP growth, which requires less diesel consumption, the EIA said.

Diesel consumption declined in the first quarter compared with the same time last year, a period of economic growth, the statistical arm of the U.S. Department of Energy noted.

The EIA added that the trend is expected to continue, with diesel demand for the second half of this year seen below the 2015-2019 average and then falling further in 2024.

Between the first quarters of 2021 and 2023, spending on services rose 10% while spending on goods rose just 2% over that period, the EIA said.

The Institute for Supply Management said its manufacturing Purchasing Managers’ Index (PMI) fell to 46.9 last month from 47.1 in April. It was the seventh straight month that the PMI stayed below the 50 threshold, which indicates contraction in manufacturing, and it is the longest such stretch since the Great Recession.

While the services sector has also slowed, the non-manufacturing PMI was still in expansion and landed at 50.2 for last month.

“Going forward, we expect this trend (of more spending on services) to continue and GDP to increase by 1.3% in 2023, while the distillate-weighted manufacturing index declines by 1.1%,” EIA said.
Source: Reuters (Reporting by Shariq Khan Editing by Marguerita Choy)

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