(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: https://tmsnrt.rs/39H29K0
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.
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.
Most traders are anticipating a cyclical acceleration in oil and energy consumption this year as the manufacturing and freight sectors put last years 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.
- 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)