By Stephanie Kelly and Laura Sanicola
NEW YORK (Reuters) - U.S. distillate inventories have climbed to the highest in nearly four decades as refiners continue to ramp up production despite signals that a recovery in road and air traffic demand has stagnated.
Stocks of distillates, which include diesel, heating oil and jet fuel, have risen for three straight weeks to nearly 180 million barrels, their highest since 1982, according to U.S. Energy Information Administration.
The next weekly report due on Wednesday likely will show another build for last week, analysts forecast.
By the end of July, refiners ramped up output to 79.6% of total capacity, the highest since late March, even as gasoline and distillate demand remains 10% below pre-pandemic levels.
Distillate products supplied - a proxy for demand - bottomed in late May at 2.7 million barrels per day (bpd), the lowest since 1998, and since has climbed to 3.7 million bpd, EIA data showed.
However, sluggish outlooks in key sectors such as construction and air travel point to further inventory builds.
Construction spending, which influences diesel use, fell to a one-year low in June, hit by declining outlays on private and public projects, government data showed.
U.S. airline passenger volumes remain 74% below year-ago levels and have held around that level since the end of June, Airlines for America data showed.
Since the second week of July, the recovery in road and air traffic volumes has stalled, said Artyom Tchen, senior analyst at consultancy Rystad Energy. With refineries "gradually ramping up operations, regional product oversupplies and stock builds might indeed occur," Tchen said.
Distillate inventories could rise further when the newly overhauled 210,000 bpd Limetree Bay refinery in St. Croix begins operating in the coming weeks.