U.S. Diesel Demand Hits 26-Year Seasonal Low Amid Economic Slowdown

In March 2024, US diesel demand plummeted to its lowest seasonal level in 26 years, driven by a significant slowdown in economic growth. According to the US Energy Information Administration (EIA), the product supplied of distillate fuel, essential for trucking, heating, and heavy industry, fell to 3.67 million barrels per day. This figure marks a downward revision from previous estimates, highlighting the severity of the economic deceleration.

The deteriorating diesel market is a concerning signal for broader oil demand. Dennis Kissler, senior vice president for trading at BOK Financial Securities, noted that as the economy slows, consumption of diesel and other fuels tends to decline. This trend is already evident in weakening refining margins globally, with Asia and the US experiencing reduced profitability from earlier highs.

"It's a function of the slowing economies in Asia and the US, and how inflation is tightening consumer spending habits," Kissler told Bloomberg. "People aren't spending money like they were a year ago."

A month ago, lukewarm demand for diesel and other distillates had traders scrambling to secure storage tanks on the U.S. East Coast while they ride out the weak market, with demand for distillate storage at New York Harbour increasing to 300,000 barrels in April, compared to no bidder interest at all in March. Last month, Oillprice.com reported that Europe's diesel market was in contango courtesy of a market that was not just well-supplied but possibly oversupplied. 

This decline in diesel demand serves as a broader indicator of economic health, suggesting that the oil and gas industry may face ongoing challenges as economic conditions continue to impact fuel consumption patterns. Traders and investors in the oil and gas sector should closely monitor these trends to anticipate market shifts and adjust their strategies accordingly.

By Julianne Geiger for Oilprice.com

More Top Reads From Oilprice.com:

• OPEC+ Extends Oil Cuts Into 2025
• EU Tariff Could Cost China Nearly $4 Billion in EV Sales
• U.S. Gasoline Prices Continue to Drop