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Despite the fact that U.S. refinery runs have recovered to near normal levels after Hurricane Harvey, refiners are finding it difficult to keep up with robust domestic demand and exports of distillates, whose inventory continues to drop.
According to the EIA’s weekly inventory report for the week to September 29, distillate fuel inventories declined by 2.6 million barrels last week and are in the lower half of the average range for this time of year. At September 29, distillate fuel stocks were 135.4 million barrels.
The winter heating season—the peak distillate demand period—is approaching, and many traders believe that heating oil stocks will be tighter this winter season and prices will further increase, according to Reuters market analyst John Kemp.
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, according to a Reuters analysis of EIA data last month.
Distillate inventories dropped by 2.2 percent between June and September, the first ever fall in that period since 1982. To compare, since 2000, distillate stocks have typically increased by an average 10 percent 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.
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But this year, due 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.
Stocks could rise heading into winter if refiners continue to run at high rates instead of slowing down like they usually do in October and November. But even at high run rates, refiners could struggle to build up inventory because stocks are already in the lower half of the average range for this time of the year, and demand from the freight sector is recovering, Reuters’ Kemp argues.
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.