Scrimping consumers spell weak diesel demand
Written on October 9, 2009
Americans’ newfound frugality means that demand for U.S. diesel fuel will continue to languish through this year’s holiday season as shipments of goods remain weak.
As a result, refineries, already running well below capacity, may be forced to slow operations even more to cut down on inventories of diesel and jet fuel, the so-called distillate fuels, which have brimmed to 26-year highs.
With U.S. unemployment topping 9 percent, consumers are pinching pennies rather than heading to the mall, dramatically shrinking freight shipments that normally account for much of diesel demand.
“When they save, they don’t buy, and when they don’t buy, the trucks aren’t full,” said Charles Clowdis, managing director of IHS Global Insight’s commerce and transport advisory group.
“The economy is still in the pits … people don’t spend money when they don’t have jobs,” he said.
At 9.8 percent, U.S. unemployment is at its highest rate since 1983, according to government data, a fact that experts said will leave holiday spending flat this year.
In previous years, retailers anxious to stock their shelves kept the trucking industry busy before and during the holidays.
But shipping activity in the upcoming Christmas season is not expected to rise much from current levels, said Bob Costello, the American Trucking Association’s chief economist low fee pay day loans.
In August, seasonally adjusted truck tonnage was still 7.5 percent lower than the same period a year earlier, according to the American Trucking Association.
North American air freight demand that same month was 12.1 percent lower, according to the International Air Transport Association.
The recession has also dealt blows to other industries that are heavy consumers of diesel fuel.
“We’ve been shutting down manufacturing facilities, we’ve been retooling the auto industry, airlines are not flying as many passengers and they are flying a lot more efficiently,” said Phil Flynn, analyst with PFGBest Research in Chicago.
DEMAND DESTRUCTION
In fact, better fuel efficiency may mean that diesel demand recovery will trail an economic upturn.
“You had a confluence of situations that created demand destruction that will take years to recover,” Flynn said.
Filed in: management.