Fears of a diesel shortage have receded in recent weeks despite a drawdown in U.S. distillate inventories which have fallen in the past weeks and are around 11% below the five-year average for this time of the year.
Diesel markets in the U.S. and globally are less tight than feared at the start of this year, when traders were bracing for the EU ban on Russian diesel and other product imports. The continued flow of diesel exports from Russia - to destinations other than Europe - as well as a slowdown in freight and manufacturing activity and a warmer-than-usual winter in most of the northern hemisphere have helped ease concerns about a looming diesel shortage.
In the United States, distillate stocks - including diesel and heating oil - fell to 112 million barrels on April 14, down from 122 million barrels on March 3, per EIA data compiled by Reuters senior market analyst John Kemp.
In the latest reporting week to April 14, distillate fuel inventories decreased by 400,000 and are about 11% below the five-year average for this time of year, the EIA said in its weekly report last week.
The decline in distillates was also due to a rise in net exports, which accelerated to an average of 900,000 barrels per day (bpd) over the past five weeks, up from 700,000 bpd in early February, Reuters' Kemp notes.
In a sign of a less tight market than feared, wholesale diesel prices have slumped. The front-month futures on ultra-low sulfur diesel delivered into New York Harbor fell by 2.46% to close at $2.4949 a gallon on Thursday last week. This was the lowest settlement since early January 2022. Wholesale diesel prices saw last week their longest losing daily streak since November 2022. Related: Democrats And Republicans Clash Over Energy Policy Priorities
Sustained exports from Russia, signs of slowing freight and trucking demand, and major refineries coming online in the Middle East have all eased the upward pressure on wholesale diesel prices and eased concerns about a diesel crunch.
The EU ban on seaborne imports of Russian oil products, in effect since February 5, is said to have created a diesel glut in Asia, also helped by Chinese fuel exports as refiners received a large batch of export quotas early this year. Gasoil stocks held in Asia have jumped since the EU's ban on imports of Russian diesel came into effect on February 5, as Asian refiners now have to compete with Russia for diesel sales in Africa.
OPEC, which early this month surprised the market with another oil production cut, said in its monthly report two weeks later that commercial oil stockpiles have been rising in recent months in the developed economies in the OECD, pointing to a less tight market than at this time last year.
"On inventories, OECD commercial inventories have been building in recent months, and product balances are less tight than seen at the same time a year ago," OPEC said in its closely-watched Monthly Oil Market Report (MOMR) in the middle of April.
While increased mobility during the U.S. driving season is set to boost demand for transportation fuels, "any weakening in the economy on the back of ongoing monetary tightening measures by the US Fed may offset some of this seasonal dynamic," OPEC warned.
Fears of weakening economies weigh on the demand outlook for fuels, while supply is not as tight as feared at the end of last year and early this year.
With Western markets essentially shut for Russia's crude and products, new trade routes have emerged, and the countries sitting on some of the largest oil reserves in the Middle East are now importing Russian diesel, naphtha, and fuel oil, according to tanker-tracking and data commodity services.
"What we currently observe is a battle between bearish refined product markets (supported by a bleak macro picture) and bullish crude fundamentals," David Wech, Chief Economist at Vortexa, wrote in an analysis last week.
"Economic refinery run cuts are probably already materialising as a consequence, but they need to be substantial for bearish products to knock out bullish crude."
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Russia Discovers Massive Oil and Gas Reserves in British Antarctic Territory
Aramco’s Q1 2024 Results: Saudi Arabia is at a Dangerous Tipping Point
Groundhog Day for OPEC+
Oil Prices Remain Rangebound but a Breakout May Be Coming
Vertical Axis Wind Turbines Redefined by Machine Learning