M6 BARRON’S February 15, 2021
D
emand for diesel has returned
to pre-pandemic levels, but the
recovery for gasoline and jet
fuel consumption has been less
impressive, highlighting the challenges
ahead for the transportation fuel sector—
as well as the economy.
“Diesel serves as a strong indicator for
economic health because it fuels the move-
ment of goods,” so looking at those statis-
tics, along with gasoline and jet fuel de-
mand, which represents passenger travel,
provides insight into “short-term consumer
sentiment,” says Jenny Vander Zanden,
chief operating officer at strategic transpor-
tation solution provider Breakthrough.
Diesel prices have returned to levels last
seen in early March of last year, before the
full impact of Covid-19 took its toll on the
U.S. Demand has remained “robust through
freight transportation and is ahead of year-
ago levels,” said Vander Zanden.
Based on data from the Energy Infor-
mation Administration, on-highway diesel
fuel prices were at $2.801 a gallon for the
week ended Feb. 8. That’s the highest price
since the week ended March 9, 2020. EIA
data also show that the average amount of
U.S. distillate fuel product supplied over
the four-week period through Feb. 5,
which includes diesel and is a proxy for
demand, was up 1.9% from the same pe-
riod a year ago. Domestic gasoline de-
mand, however, is down about 10%, while
jet fuel consumption has declined nearly
34% year over year for that four-week pe-
riod, EIA data show.
Nevertheless, “gasoline prices have re-
turned to pre-pandemic levels due to sup-
ply-side adjustments,” with the decision by
the Organization of the Petroleum Export-
ing Countries and their allies to sustain
output cuts for longer, supporting oil
prices, says Vander Zanden.
The average price for a gallon of regular
gasoline stood at $2.496 on Feb. 12, up over
7 cents from a year ago, according to travel
and navigation app GasBuddy. Jet fuel
prices for the benchmark Gulf Coast, mean-
while, stood at $1.576 a gallon as of Feb. 10,
up 6% from the spot price a year ago, ac-
cording to data from S&P Global Platts.
“As vaccine distribution ramps up, we
expect to see an increase in gasoline de-
mand,” and any gains in jet fuel consump-
tion would signal a “slow return to more
typical travel behaviors,” says Vander Zan-
den. Overall, transportation fuel demand
may recover in conjunction with the vac-
cine rollout over time, but “could remain
challenged in the near term as distribution
currently lags behind initial plans.”
Demand for diesel, meanwhile, has “re-
mained relatively stronger than that of
other fuels,” says R. Dean Foreman, chief
economist at the American Petroleum Insti-
tute. He attributes that strength to “a recov-
ery of U.S. industrial production and the
broader economy,” as well as a shift toward
online retailing through the pandemic that
led to the rise in freight transportation.
In contrast, jet fuel “remained adversely
impacted by reduced demand for air
travel,” while motor gasoline demand has
remained between the two fuels.
Even without the vaccine in many ar-
eas, demand for liquid fuels in January
“recovered substantially along with the
economy,” he says. He added that weekly
data for the period suggest that total U.S.
petroleum demand was down by just 4.3%
from the same four weeks in 2020.
Fuel prices, meanwhile, have also found
support from the rise in crude oil, which
has seen prices climb back to their highest
levels in more than a year.
If there was one key takeaway from the
2020 Covid-19 recession, it “reinforced that
the global economy and energy demand” go
hand in hand, Foreman says. “Since global
economic growth is likely to be led by
emerging economies, we generally should
expect the demand for oil...to recover and
grow along with the broader economy.”B
By Myra P. Saefong
Demand for Diesel Rises
As Economy Strengthens
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