🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Column: U.S. diesel glut has mostly gone - John Kemp

Published 11/27/2020, 05:10 AM
Updated 11/27/2020, 05:30 AM
© Reuters.

By John Kemp

LONDON (Reuters) - U.S. stocks of distillate fuel oil are rapidly returning to normal, reversing the prodigious glut that built up earlier in the year during the first wave of the coronavirus epidemic and lockdowns.

The absorption of excess distillates has been made possible because U.S. refiners sharply lowered refinery crude processing and operated their equipment to maximise the production of gasoline.

But now stocks are nearing normal levels, crude processing is likely to accelerate and the extreme tilt towards gasoline is likely to be replaced by a normal balance of refined product output.

Distillate inventories declined by another 1 million barrels last week and have fallen in 12 out of the last 13 weeks by a total of 37 million barrels, according to data from the U.S. Energy Information Administration (EIA).

Distillate stocks are now 9% above the previous five-year seasonal average, down from a surplus of 29% at the start of June ("Weekly petroleum status report", EIA, Nov. 25).

Crude processing accelerated to 14.3 million barrels per day (bpd) last week, the fastest rate since August, between the first and second wave of coronavirus infections.

But processing is still down 15% compared with the five-year seasonal average while the total volume of petroleum products supplied to the domestic market is down by just 5%.

So U.S. refiners have scope to increase processing and will need to do so over the next few months to prevent a further, but this time unplanned, drawdown in fuel inventories.

Refiners have also started to reverse the extreme tilt towards gasoline at the expense of distillate fuel oil and jet fuel (https://tmsnrt.rs/368DXAp).

Over the past five years, the average ratio of gasoline to distillates and jet production has been 1.48:1.

U.S. refiners were producing at a ratio of 1.57 last week, well above the long-term average, but that was down from a multi-year high of 1.84 in October.

With distillate stocks now only 11 million barrels above the five-year average, down from 38 million barrels in June, the output ratio is likely to fall further to stabilise the distribution of inventories.

(John Kemp is a Reuters market analyst. The views expressed are his own)

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.