London: US inventories of diesel and other distillate fuel oils are now critically low after failing to recover during the summer driving season.
The shortage will keep upward pressure on diesel refining margins and prices unless and until the global economy and distillate consumption slows significantly.
Distillate inventories amounted to just 112 million barrels on Sept. 2, according to high-frequency data published by the US Energy Information Administration (EIA).
Stocks are down from 134 million barrels at the same point in 2021 and at the lowest level for the time of year since 1996 ("Weekly petroleum status report", EIA, September 8).
Stocks have barely recovered from a low of 104 million barrels in early May despite large volumes of crude processing over the summer as refiners met seasonal demand from motorists for gasoline.
The seasonal accumulation of distillate inventories since the end of June has been one of the smallest in the last 30 years, pointing to a persistent underlying shortage.
Domestic consumption muted
Domestic consumption is muted and running around 200,000 barrels per day (bpd) below the pre-pandemic five-year seasonal average.
But exports remain high as refiners respond to shortages around the world caused by the rapid rebound from the pandemic, disruptions caused by Russia's invasion of Ukraine, and China's coronavirus lockdowns.
Net exports were almost 1.3 million bpd in the five weeks ending on Sept. 2 compared with around 0.8 million bpd at the same point in 2021.
U.S. refiners have a window to boost inventories over the next few weeks by prolonging high crude processing rates for longer after the summer than normal and switching units from max-gasoline to max-distillate mode.
But the shortage of distillate fuel oils is worldwide with stocks at their lowest level for more than a decade in Europe and Asia.
Europe's distillate inventories are down 68 million barrels compared with 2021 at the lowest seasonal level since 2002.
Only a global slowdown in manufacturing and freight transportation will rebuild stocks to more comfortable levels and abate the upward pressure on refinery margins and oil prices.