(Repeats Jan. 6 column. John Kemp is a Reuters market analyst.
The views expressed are his own)
* ISM manufacturing index: tmsnrt.rs/1Rhzgry
* Freight transport index: tmsnrt.rs/1R6Wct7
* Business inventories: tmsnrt.rs/1RhzKOk
* Distillate consumption: tmsnrt.rs/1R6Wd07
By John Kemp
LONDON, Jan 6 Growing signs of weakness in the
U.S. economy are helping keep oil prices under pressure even as
tensions escalate across North Africa and the Middle East.
U.S. manufacturers reported business activity contracted for
the second month running in December, according to the Institute
of Supply Management (ISM).
The ISM's composite manufacturing index was below 50 in both
November and December 2015 for the first time since November
2012 and before that July 2009.
The Institute contacts around 300 purchasing managers each
month to enquire about changes at their firms in production, new
orders, employment, inventories and the speed of supplier
The results are used to produce the purchasing managers'
index. In the past, index readings below 50 have generally been
associated with a contraction in manufacturing activity (tmsnrt.rs/1Rhzgry).
The index is strongly cyclical and not every slowdown
heralds an economic recession (not least because manufacturing
now accounts for less than 15 percent of GDP).
But U.S. manufacturers have reported slowing growth since
the middle of 2015 which turned into an outright contraction
towards the end of the year.
The drop in the index is consistent with other indicators
pointing to a pronounced slowdown in manufacturing activity in
the second half of 2015.
Freight movements by road, rail, barge and pipeline have
been flat for the past year, ending five years of strong growth,
according to the U.S. Bureau of Transportation Statistics (tmsnrt.rs/1R6Wct7).
On the railroads, total freight movements fell 4.5 percent
in the second half of 2015 compared with the same period a year
Containerised rail freight was flat between July and
December compared with the prior year, according to the
Association of American Railroads.
Inventories of raw materials, work in progress and finished
products held by manufacturers, wholesalers and retailers rose
sharply towards the end of 2014 and businesses had failed to
reduce them by October 2015, according to the U.S. Census Bureau
It is still not clear whether the current weakening in U.S.
manufacturing is a temporary pause that will be quickly reversed
or heralds a lengthier slowdown.
But slowing growth in the U.S. industrial economy matters
because the United States was one of the bright spots for oil
demand in 2015.
After the strongest summer driving season since 2007,
gasoline demand growth slowed in the final quarter of the year
and ended roughly unchanged from the end of 2014, though still
at a seasonally high level.
Distillate demand, however, slid to the lowest level for
more than a decade towards the end of 2015, and in the final
four weeks of 2015 was almost 460,000 barrels per day, 9
percent, lower than at the end of 2014 (tmsnrt.rs/1R6Wd07).
Part of the weakness in distillate consumption has been
caused by higher than normal temperatures across much of the
United States this winter.
But distillate is also the main fuel used by trucking firms,
railroads, vessel operators and in a variety of off-road
vehicles on construction sites.
Some of the weakness in demand is likely to be the result of
the slowdown in freight towards the end of the year.
OPEC and especially senior Saudi policymakers have relied on
continued strong growth in fuel demand to help rebalance the oil
market in 2016.
But the slowdown in fuel demand growth in the United States
over the last quarter of 2015 creates uncertainty around that
Other key fuel markets could also struggle next year. China
is struggling to reverse an economic slowdown and many emerging
markets, including the Middle East, will continue to be hit by
the drop in commodity prices.
Rising tensions across the Middle East threaten to worsen
the slowdown in the region even more which will hurt fuel
For much of 2015, the oil market focused on developments on
the supply side, with a high degree of confidence around demand.
In 2016, concerns are likely to switch back in part to the
health of the global economy and growth in fuel demand.
(Editing by Susan Thomas)