LONDON (Reuters) - U.S. industrial energy consumption is falling as manufacturing activity and freight movements decline, contributing to the surplus of natural gas and diesel, and intensifying downward pressure on prices.
Total energy consumption by the industrial sector fell for the first time since the slowdown of 2015/2016, after growing rapidly last year, data from the U.S. Energy Information Administration show.
Total consumption – including coal, gas, petroleum and electricity – fell slightly in the three months from April to June compared with the same period a year earlier.
Industrial energy consumption is likely to have fallen even further since then, given statistical indicators showing manufacturing and freight movements continued to decline during the third quarter.
In recent decades, there has been a close correlation between the Institute of Supply Management’s purchasing managers’ survey, the Federal Reserve’s industrial production index, and fuel consumption.
Volumes of gas delivered to industrial users fell more than 1% in the three months from May to July compared with a year earlier (“Monthly energy review”, EIA, Sept. 2019).
Gas deliveries to industry were down for the first time since the start of 2016, after growing at an annual rate of more than 4% in mid-2018.
Diesel consumption was down by almost 2% year-on-year in May-July, a sharp turnaround from growth of 4% a year earlier.
Diesel consumption data is for all users, but most of the fuel is used by freight firms, manufacturers, miners, oil and gas drillers and farmers.
The slowdown in diesel mirrors a downturn in rail freight and a slowdown in road freight as the trade war with China and heightened business uncertainty have taken a toll on imports and the durable goods sector.
The number of shipping containers hauled by the major railroads was down 6% in the three months from June to August compared with a year earlier.
Truck tonnage was still up by around 4% year-on-year in June-August, but growth has halved since the middle of 2018, according to the Bureau of Transportation Statistics.
Slack consumption from industrial users has come at a time when oil and gas output is still growing thanks to the lagged effect of last year’s drilling boom.
The result has been a persistent oversupply of natural gas which has kept prices under pressure for much of the year as the market tries to rein in gas production.
Diesel prices have been firmer – but only because refiners have throttled back crude processing and diesel production rates since the second quarter to avoid flooding the market with fuel.
John Kemp is a Reuters market analyst. The views expressed are his own.
- Sluggish oil consumption to keep pressure on prices (Reuters, Sept. 5)
- Bulging fuel stocks put spotlight on slack consumption (Reuters, July 18)
- Freight fuel prices subdued as economy outweighs IMO (Reuters, July 16)
- U.S. diesel consumption hit by economic slowdown (Reuters, July 4)
Editing by Elaine Hardcastle