(John Kemp is a Reuters market analyst. The views expressed are
his own)
* Chartbook: https://tmsnrt.rs/39H29K0
By John Kemp
LONDON, Jan 6 (Reuters) - U.S. manufacturers and freight
hauliers were hit last year by the sharpest slowdown since the
2008/09 recession and it filtered through into a noticeable dip
in energy consumption.
Use of electricity, natural gas and diesel by industrial
customers all showed large declines, or at least sharp
slowdowns, in the nine months ending in September 2019.
In July to September, industrial users' total energy
consumption fell 1% compared with the same period a year
earlier, according to statistics from the U.S. Energy
Information Administration.
That was the biggest decline since the mid-cycle
manufacturing slowdown in 2015/16 and before that the recession
of 2008/09 ("Monthly energy review", EIA, Dec. 23).
Within the total, industrial consumers' electricity
consumption fell by almost 5% in the third quarter from a year
earlier, easily the biggest decline since the recession.
Power consumption exhibits a lot of short-term variability
based on both the weather (which affects heating and cooling
demand) and the state of the economy, so the data must be
interpreted with care.
But industrial users' consumption showed a much more
pronounced third-quarter slowdown than for residential
customers, which suggests most of the weakness was economic
rather than weather-related.
In contrast to electricity, industrial users’ gas
consumption continued to grow, mostly because of the strong
increase in demand from petrochemical producers (https://tmsnrt.rs/39H29K0).
Even so, gas consumption rose by just 0.75% in
July-September compared with a year earlier, down from a growth
rate of 7% year on year in early 2018.
DIESEL SLUMP
The manufacturing and freight slowdown has also hit
petroleum demand, especially consumption of the middle
distillate fuel oils such as diesel used by manufacturers,
railroads and trucking firms.
Economy-wide distillate consumption was down almost 3.4% in
August-October compared with a year earlier ("Petroleum supply
monthly", EIA, Dec. 31).
Like electricity use, distillate consumption closely tracks
industrial output and manufacturing surveys, so the slump in
fuel use confirms the severe hit to manufacturing activity in
the middle of last year.
Slackening distillate demand has been reflected in a
slowdown in refining activity and reduced profitability for many
refining firms, including some of the oil majors.
U.S. oil refineries processed 17.0 million barrels per day
(bpd) of crude oil and other inputs during 2019, down 300,000
bpd (1.8%) compared with the previous year.
U.S. refinery processing was below year-ago levels for 41
out of 52 weeks in 2019, a sign of tepid consumption ("Weekly
petroleum status report", EIA, Jan. 3).
The manufacturing and freight recession was even worse
across Europe and Asia, as rising tariffs and intensifying
business uncertainty have taken their toll on investment and
activity.
The result has been a worldwide slump in distillate
consumption that has hit refining throughput, margins and
profits for refiners across North America, Europe and Asia.
Royal Dutch Shell and Exxon Mobil have
both warned investors in recent weeks that fourth-quarter
profits will be lower than previously forecast, citing lower
demand for refined fuels and petrochemicals.
2020 OUTLOOK
Most traders are anticipating a cyclical acceleration in oil
and energy consumption this year as the manufacturing and
freight sectors put last year’s slowdown behind them.
The United States and China have announced a Phase 1 trade
deal that should reduce some tariffs and avoid the imposition of
others, as well as create a more stable business environment.
The U.S. Federal Reserve and other major central banks have
also cut interest rates over the last 6-9 months and provided
other forms of credit stimulus to extend the business cycle
expansion.
And fiscal policy is likely to become more expansionary, as
the United States enters a presidential election year and
European governments try to boost disappointing growth.
Encouraging optimism, industrial production data from the
start of the fourth quarter appeared to indicate the cyclical
downturn was bottoming out, creating conditions for an upturn at
the start of 2020.
More recently, manufacturing surveys have shown lingering
weakness in the United States and China, which could push back
an acceleration in energy consumption to later in the year.
Related columns:
- Oil prices rise on optimism about economy in 2020
(Reuters, Dec. 17)
- U.S. economy set fair for 2020, provided trade truce holds
(Reuters, Dec. 6)
- U.S. industrial energy use falls as manufacturers struggle
(Reuters, Oct. 10)
(Editing by Susan Fenton)
