(John Kemp is a Reuters market analyst. The views expressed are his own)
* Diesel sales to U.S. oil industry: http://tmsnrt.rs/1l2UAT6
By John Kemp
LONDON, Jan 12 (Reuters) - El Nino and the warm winter
weather are being blamed for the weak demand for distillate fuel
oil in the United States, but the slump in oil production is
probably having a bigger impact.
The oil industry was the fastest-growing customer for middle
distillates like diesel between 2009 and 2014, according to the
U.S. Energy Information Administration (EIA).
The oil industry itself accounted for 20 percent of all the
increase in diesel consumption during the five-year drilling
Businesses engaged in oil drilling, pipelines and refining
consumed 2.1 billion gallons of diesel in 2014, the most recent
data available, up from just 760 million gallons in 2009.
By 2014, oil producers accounted for 3.5 percent of all
distillate fuel oil sales in the United States, up from 1.4
percent in 2009.
Drilling rigs and the massive pumps employed for hydraulic
fracturing all use high-horsepower engines which run 24 hours
per day and consume prodigious quantities of fuel.
The heavy trucks used to haul drill pipe, frac sand and
water to well sites, and carry away crude before the well is
hooked up to gathering pipelines, are all diesel powered.
And since many oil fields are in remote rural areas with
little or no electricity supply from the main power grid, most
of the electricity used for heating and lighting also comes from
So as the number of active drilling rigs and crews rose
five-fold from around 300 in 2009 to more than 1500 in 2014,
diesel consumption surged as well.
Direct diesel sales to customers in the oil industry rose
from 50,000 barrels per day to almost 140,000 barrels per day
For comparison, in 2014, around 2.5 million bpd of
distillate was were sold as road fuel, while 250,000 bpd were
sold to residential customers, 240,000 bpd to the railroads and
200,000 bpd to farms.
But as drilling activity has plummeted in 2015, the big
increase in diesel consumption in the oil fields has unwound.
Nationwide distillate consumption was flat in the first ten
months of 2015, after growing by more than 5 percent in 2014.
The slowdown started long before unusually warm weather arrived
in the autumn and winter.
The slump in oil and gas drilling, as well as a general
slowdown in freight shipments, some of which is linked to the
drilling slowdown, likely explains much of the weakness in
diesel consumption in 2015.
With no end in sight to the drilling slump, weak diesel
demand looks set to continue through at least the first half of
2016, which will continue to depress refining margins in the
middle of the barrel.
Senior Market Analyst