September 11, 2024 [Reuters]- U.S. ultra-low sulfur diesel futures <HOc1> fell to a three-year low on Tuesday, dragged down by concerns of weak economic activity which have also deepened a selloff in the broader oil market.
ULSD futures traded on the New York Mercantile Exchange fell 3.6% to settle at $2.06 a gallon, the lowest since August 2021. U.S. crude futures fell 4.3% to end at $65.75 a barrel, their lowest since December 2021.
WHY IT IS IMPORTANT
Signs of weak economic activity in the U.S. and China, the top oil consumer and top importer, respectively, have weighed heavily on oil and fuel markets in recent months. Diesel is primarily used in industrial activities, tying the fuel’s consumption closely to manufacturing growth.
CONTEXT
The Organization of the Petroleum Exporting Countries on Tuesday lowered its world oil demand forecast for this year and next, with the bulk of the cuts due to expectations of lower growth in China.
The producer group said headwinds in China’s real estate sector and growing adaptation of liquefied natural gas (LNG) as a trucking fuel in the country will likely weigh on diesel demand going forward.
Meanwhile, the U.S. Energy Information Administration on Tuesday lowered its forecasts for this year’s distillate fuel consumption in the country, also citing economic concerns from slowing job growth in recent months and the growing use of alternative fuels.
BY THE NUMBERS
China’s LNG-powered truck fleet reached 730,000 in June and is expected to grow to 850,000 vehicles by the year-end, a China oil researcher told Reuters on Tuesday, displacing 280,000 barrels per day (bpd) of diesel in 2024.
U.S. distillate demand, which includes diesel and heating oil, is now expected to average 3.83 million barrels per day (bpd) this year, down from a prior forecast of 3.87 million bpd, the EIA said on Tuesday.
It estimated demand last year was around 3.92 million bpd.
While conventional diesel use is seen declining year-over-year, the EIA expects the biofuel component of the market to grow. Biofuel consumption is expected to rise to 360,000 bpd this year, from 310,000 bpd last year, the EIA said.
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