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U.S. distillate stocks, which include diesel and heating oil, have slumped to their lowest level for this time of the year since 1951, just as the heating season starts and the EU embargo on Russian oil product imports kicks in in February.
Despite a small build in America’s distillate inventories last week, the levels are still at their lowest level since 1951, according to Financial Times estimates.
The historically low stocks have pushed diesel prices much higher than the smaller rises in gasoline and crude oil this year. Since diesel is the primary fuel of the economy and long-haul transportation, the high diesel prices continue to fuel inflation.
In the week ending November 11, distillate fuel inventories increased by 1.1 million barrels and are about 15% below the five-year average for this time of year, the EIA said in its weekly inventory report on Wednesday. At 107.4 million barrels, those stocks are the lowest ever seen for this season of the year.
“The bulk of the increase in distillate stocks was on the US East Coast. And while this is helpful, stocks in the region are still at their lowest levels on record for this time of year,” ING strategists said on Thursday, commenting on the EIA inventory data.
Very low diesel stockpiles and lower refining capacity since the pandemic have driven diesel prices in the United States higher to the point of reaching a record-high premium over gasoline and crude oil.
Going forward, the supply of diesel in the U.S. and globally is set to tighten even further with the EU embargoes on imports of Russian crude and products, starting in December and February, respectively.
“The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers,” International Energy Agency (IEA) said in its monthly report earlier this week.
“Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear,” said the agency, which sees stubbornly high diesel prices fueling inflation as well as slowing economies leading to a slight decline in global diesel demand in 2023.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.