Weekly Economic Trends and Indicators

The Headlines:

According to the U.S. Energy Information Administration, distillate fuel consumption is forecasted to be down by about 2% for the 2024 calendar year. The forecast for 2025 is for an increase in distillate fuel consumption of about 4%. Distillate fuel consumption consists of petroleum distillate fuels (gasoline, diesel, etc.), renewable diesel, and biodiesel.

The Details:

Nearly all of the expected increase in distillate fuel consumption is due to petroleum distillates. Little change is expected in renewable diesel or biodiesel. Despite the expected increase in demand for petroleum-based fuels, prices are expected to decline slightly in 2025 due to expanding supply.

Crude oil prices are expected to remain approximately at their current prices over the next year. However, there is a wide margin of error for this forecast as geopolitical events can suddenly influence crude oil prices with little advance warning.

The Context:

Energy markets have been impacted by several factors over the last few years. The COVID-19 pandemic caused a large but temporary decrease in demand in 2020 and 2021. The following rebound in demand in 2022 coincided with Russia’s invasion of Ukraine resulting in a very large and sudden spike in prices for petroleum distillate fuel. The U.S. average retail price of regular gasoline surged well above $4/gallon while the U.S. average retail price of diesel fuel reached nearly $6/gallon, double what it had been little more than a year before.

This was also the time of the large spike in domestic U.S. inflation which also pushed up energy prices of all types. However, as inflation declined in 2023 and 2024, gasoline prices moderated significantly. Adjusted for inflation, U.S. retail gasoline prices are below their pre-pandemic levels.

In contrast, diesel prices remain elevated. The primary reason that diesel prices have not fallen as quickly as other prices is the ban on seaborne petroleum products from Russia by the European Union. This ban, effective in February 2023, forced EU countries to import petroleum products, including diesel fuel, from other sources around the world. As a result, normal trading patterns have been disrupted, causing higher and more volatile prices. Until these trading patterns normalize, expect higher diesel prices.

Overall, distillate fuel consumption in the U.S. has declined in 2023 and 2024 due mainly to lower manufacturing output. Lower manufacturing output means less product being transported. However, this is expected to reverse in 2025. This is good news for manufacturers, but the demand for diesel will also work to keep diesel prices elevated. While prices are expected to continue to fall, the pace at which diesel prices are falling could be slower next year.

Next week: Local GDP data for 2023