U.S. diesel demand is rising at the fastest pace in five years as the economy expands and truckers haul more goods, boosting profits for refiners.
Use of the fuel in the four weeks ended June 11 increased 12 percent from the previous year, the Energy Department said June 16. About 9.6 percent more freight moved by road in April than in the same period of 2009, according to the American Trucking Association. Refiners earned $12.23 a barrel on June 18 turning crude oil into diesel and other distillates, more than double levels of a year ago, according to futures market data.
“Given the trend we’re seeing, we would expect diesel demand to contribute to a larger proportion of oil-demand growth,” said Costanza Jacazio, a commodities analyst at Barclays Capital in New York.
Ultra-low-sulfur diesel, the grade used by trucks, dropped 1.85 cents to $2.1854 a gallon on June 18 in the New York harbor market, trimming the 12-month gain to 17 percent, according to data compiled by Bloomberg. Crude oil has gained 8.1 percent over the same period to $77.18 a barrel on the New York Mercantile Exchange. Oil rose 64 cents to $77.82 a barrel today in New York.
Consumption of U.S. distillates will expand 1.4 percent to 3.68 million barrels a day this year, the largest annual increase since 2005, the Energy Department forecast on June 8.
While deliveries rose 7.8 percent in May from a year earlier, shipments were still 20 percent below the peak in February 2007 of 4.6 million barrels a day, according to a June 18 report from the American Petroleum Institute in Washington. Deliveries averaged 3.7 million barrels a day last month, the second-lowest level for May since 2003.
Goods arriving in containers at the ports of Los Angeles and Long Beach, California, which handle more than 40 percent of U.S. waterborne imports, increased 18 percent in May, according to the ports’ websites. That boosts the need for truck and rail transport.
Industrial output rose 1.2 percent in May, the most since August, the Federal Reserve said on June 16. Manufacturing in the central Atlantic region expanded for the fourth straight month in May, the Richmond Fed’s latest survey showed. The U.S. economy is forecast to expand this year at the fastest pace since 2004, according to a Bloomberg survey of 67 economists.
Diesel demand in the Midwest is “surprisingly solid” after fuel use by farmers dropped at the end of the spring planting season, said Steve Mosby, vice president of ADMO Energy LLC, a supply consultant in Kansas City, Missouri.
Farms account for about 5.2 percent of U.S. distillate sales, Energy Department data show.
The Magellan Midstream Partners LP products pipeline, a 9,500-mile (15,285-kilometer) system running through the Midwest from the Gulf Coast to northern Minnesota, has had “higher- than-average” demand, Mosby said.
The rebound in fuel use comes after refiners closed plants last year to curb production during the recession.
“Diesel demand and growth are intertwined, and as the economy gains strength, diesel demand will also gain strength,” said Bill Day, a spokesman for San Antonio-based Valero Energy Corp., the largest U.S. independent refiner.
The jump in consumption is likely to benefit Valero and Philadelphia-based Sunoco Inc., the largest East Coast refiner, while limiting supply gains in South America and Europe. About 12 percent of U.S. diesel was exported in March, almost the same as a year earlier.
Sunoco, which cut jobs, sold assets and shut a plant as it lost $316 million on refining last year, said in a June 16 investor presentation that the refining segment will turn a profit this quarter on lower costs and higher use of its refining capacity.
Valero said in April it will complete work to upgrade diesel-making hydrocrackers at Port Arthur, Texas, and Norco, Louisiana.
“Distillate demand in the world is going to grow at two to three times the rate of gasoline demand, and these hydrocrackers are at plants where we have export capability,” Valero Chief Executive Officer Bill Klesse said in an earnings conference call with investors on April 27.
Zug, Switzerland-based Petroplus Holdings AG bought Valero’s idled refinery in Delaware City, Delaware, and plans to open the plant in April 2011. The company also intends to build a high-pressure hydrotreater to produce diesel.
European diesel prices are rising as inventories decline, making it more profitable for traders to buy fuel in the U.S. to ship across the Atlantic. Ultra low-sulfur diesel for loading in Amsterdam-Rotterdam-Antwerp, Europe’s oil-trading hub, traded at $689 a ton on June 18, up 4.8 percent this year, according to Bloomberg data.
Gasoil stockpiles in independent storage fell 8 percent in the week ended June 17 in the Amsterdam region, according to Oosterhout, Netherlands-based consultant PJK International BV.
“Globally, demand has really picked up strength,” said Jacazio at Barclays.