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Diamond Diesel Service, Inc., Auto Repair & Service - Diesel, Oakland, CA

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Back To Diesel Products> Diesel Demand Still Down as economy Starts to Perk Up

By Monica Hatcher

Houston Chronicle

If the consumption of diesel fuel is an indicator of economic growth, the road to recovery will likely stretch well into this year.

Demand for diesel was down 4 percent in the four-week period that ended Jan. 8, compared with a year ago, signaling that industries using diesel-driven manufacturing plants, barges, trains and trucks are still struggling as the economy sputters back to life.

The most recent figures from the U.S. Energy Information Administration surprised some fuel analysts who expected better numbers after the recent nationwide cold snap, since the diesel use measure includes heating oil.

Demand for diesel was down 4 percent in the four-week period that ended Jan. 8, compared with a year ago, signaling that industries using diesel-driven manufacturing plants, barges, trains and trucks are still struggling as the economy sputters back to life.

The most recent figures from the U.S. Energy Information Administration surprised some fuel analysts who expected better numbers after the recent nationwide cold snap, since the diesel use measure includes heating oil.

The numbers underscore the continued sluggishness in diesel's biggest market, the transportation sector.

“They say you can judge the economy by the freight docks, and our freight docks are very slow,” said Robert Mele, president of Teamsters Local Union No. 988 in Houston, which represents 4,500 truck drivers. “We were hoping for a rebound, and it's looking like it's going to be a little bit longer.”

But maybe not too much longer: While demand remains weak, it has inched up since last year's low of 3.38 million barrels per day in August, suggesting that the worst of the slump may be in the rearview mirror.

The Energy Information Administration, the statistical arm of the U.S. Department of Energy, said last week that it expects this month's diesel consumption to hit 4.06  million barrels per day, the highest since 4.08 million last January.

And the agency said it expects U.S. diesel consumption to rise 2.1 percent this year.

That could signal some relief after a miserable year for the refining industry.

U.S. demand for distillate fuels, which include several varieties of diesel as well as heating oil, plummeted 8.3 percent last year.

As a result, refiners have pulled back on production and are running refineries at just over 80 percent of capacity, according to the Energy Information Administration. Refining margins — the spread between what refineries pay for crude oil and the price they can get for products they make from it — have remained low.

Last week, Chevron reported that its fourth-quarter refining margins were the lowest of the year. In the Gulf Coast region, Chevron said its margin dropped to $11.56 a barrel from $18.96 a year ago.

Brian Milne, refined fuels editor for Telvent DTN, an Omaha, Neb.-based information technology and services company, said that while demand is improving, it remains well below pre-recession levels.

“It's slowly, slowly clawing its way back, but we just haven't seen that recovery yet,” Milne said.

Ryan Mossman, vice president and general manager of fuel services for Houston-based FuelQuest, which manages fuel supplies for bus, food distribution and waste companies, among others, said that even when customers increased diesel orders, it was because they had lengthened hauls to maximize resources.

Despite tepid demand and ballooning stockpiles, fuel prices have crept up over the past year, largely the result of a run-up in crude oil prices.

The national average for a gallon of diesel was $2.92 on Friday, according to AAA's daily fuel gauge report, up 49 cents from a year earlier. In the Houston area, diesel was $2.80 Friday, up 48 cents from a year ago.

Mossman said the recent uptick in prices probably isn't enough to hinder growth.

“If you look at how demand and behavior is affected by prices, at some point it absolutely does have an impact, but it takes a pretty extreme price increase, and the prices we're at now are still well below where they have been,” Mossman said.

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