U.S. Diesel, Heating Oil Inventories At Historical Low

Even before Hurricane Harvey shut down more than 20 percent of U.S. refining capacity, U.S. diesel, jet fuel, and heating oil stocks had dropped during the summer months, for the first time since record keeping began in 1982, a Reuters analysis of EIA data showed on Friday.

Distillate inventories dropped by 2.2 percent between June and September, the first ever fall in that period since 1982. To compare, distillate stocks have typically increased by an average 10 percent since 2000 during the summer months, because that’s when refiners consciously build distillate inventories to prepare for increased fall and winter demand for heating oil and harvesting.

But this year, thanks to a surprisingly high summer demand of diesel, jet fuel, and heating oil, those stocks did something unprecedented—they dropped. Part of the demand was due to U.S. exports of those products, especially to Latin America.

Currently, U.S. distillate stocks are at a three-year low for the season as we head into fall and winter months, and they are 5.2 percent below the historical average, according to Reuters’ analysis of EIA data.  

This low inventory was due in part thanks to Hurricane Harvey, which caused distillate stocks to decline by 4.6 million barrels in the first two weeks of September, due to loss of refinery capacity. The decline in those stocks raises the prospect of shortages or higher prices should another unexpected event occur, or should the winter be exceptionally cold.

“If we get another hurricane or similar event, things could get real tight,” Robert Campbell, head of oil products markets at London-based Energy Aspects, told Reuters.

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While inventories are down, refiners’ profit margins sit at a five-year high, which could be an economic incentive for U.S. refiners to produce at higher rates, easing concerns over possible supply shortages.

Europe, one of the big export markets for the U.S. diesel, is also feeling the Harvey supply impact as U.S. exports drop. Diesel stocks in Europe are forecast to fall this month at the fastest clip in at least three years, traders told Reuters.

By Tsvetana Paraskova for Oilprice.com

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