Petroleum products

U.S. distillate fuel consumption
We forecast more distillate fuel consumption in the United States next year after two years of declines, largely because we expect manufacturing activity to increase. Over the past two years, a slight decline in U.S. manufacturing activity has reduced total distillate fuel use in the United States. In 2024, we forecast U.S. distillate consumption will average 3.8 million barrels per day (b/d), down 2% from last year and down 5% from 2022. However, we forecast U.S. consumption in 2025 will increase by 4% (150,000 b/d). Our forecast increase in U.S. distillate consumption is driven by more industrial activity in 2025, supported by a lower Federal Funds rate. The increased consumption largely results from increased demand from manufacturers and truckers that ship goods.

U.S. distillate consumption is made up of petroleum distillate fuel, renewable diesel, and biodiesel. In 2023 and 2024, U.S. distillate fuel consumption declined in response to a slight reduction in U.S. manufacturing activity. The petroleum component of distillate consumption declined by even more than the total because of increased substitution from biofuels. Both renewable diesel and biodiesel are biofuels that can be used in place of petroleum distillate fuel oil. Unlike conventional biodiesel, renewable diesel is chemically identical to petroleum diesel and can be blended as a drop-in replacement fuel. More renewable diesel is consumed in the U.S. West Coast (PADD 5) than in any other region of the United States, as measured by product supply, and accounts for 86% of total U.S. renewable diesel fuel consumption as of August 2024 in our Petroleum Supply Monthly (PSM). We forecast U.S. renewable diesel consumption will increase to 240,000 b/d by 2025, more than double the consumption level in 2022.

U.S. refinery capacity
Closure announcements from refiners have reduced U.S. refinery capacity in our current STEO forecast. LyondellBasell Industries plans to close its 263,800-b/d Houston Refinery in the first quarter of 2025, citing the high cost of needed overhauls. On October 16, Phillips 66 announced it will stop operations at its 138,700-b/d refinery in the Los Angeles area in 4Q25. We now forecast U.S. operable refinery capacity will average 17.9 million b/d by the end of 2025, down by 0.4 million b/d from the end of 2024. Our STEO forecast does not include temporary reductions in capacity because of maintenance or unplanned outages.

Single-product crack spreads for gasoline and diesel are indicators of refining margins. Other factors equal, lower refinery capacity reduces the production of fuels such as gasoline and diesel. We expect crack spreads for both gasoline and distillate fuel will increase slightly next year. U.S. refinery capacity reductions are one factor that we expect will raise crack spreads. We also expect rising demand for gasoline and diesel in the United States will put upward pressure on margins. However, we assume that refinery capacity additions outside of the United States will limit increases in crack spreads in 2025.