RPT-COLUMN-U.S. diesel shortage starts to ease: Kemp

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By John Kemp

LONDON, Nov 24 (Reuters) - U.S. stocks of road diesel and heating oil show early signs of stabilising and even increasing slightly as exceptionally high prices encourage production, discourage exports and possibly suppress consumption.

Distillate fuel oil inventories increased by 3 million barrels in the six weeks between Oct. 7 and Nov. 18, according to the U.S. Energy Information Administration (EIA).

The increase was small but runs against the normal trend for a drawdown at this time of year and indicates high prices and a slowing economy are starting to rebuild inventories.

In the ten years before the pandemic, distillate inventories declined by an average of more than 11 million barrels over the same period.

Between 2010 and 2019, seasonal drawdowns ranged from ranged from as little as 7 million barrels to as much as 21 million barrels.

Distillate inventories have not increased at this time of year since 2008, when the financial crisis was pushing the economy further into recession.

Stocks are still 21 million barrels (-16% or -1.25 standard deviations) below the pre-pandemic five-year seasonal average.

But the deficit to the seasonal average has narrowed from 34 million barrels (-24% or -2.05 standard deviations) on Oct. 7.

Chartbook: U.S. distillate inventories

PRICE RESPONSE

There is some evidence high refining margins and prices for diesel and other middle distillates are restraining consumption.

In the four weeks ending on Nov. 18, the volume of distillate fuel oil supplied to the domestic market averaged 4.03 million barrels per day, the lowest for the time of year since 2016.

But the more impact has come from a sharp slowdown in exports as foreign economic activity has slackened and high prices have encouraged marketers to keep more distillate at home.

Net distillate exports have slowed by around 0.4 million bpd since the start of October, relieving some of the pressure on inventories.

High margins and prices are also encouraging refineries to process more crude and maximise the yield of middle distillates.

Distillate production averaged 5.13 million bpd in the four weeks ending on Nov. 18, an increase of 0.3 million bpd compared with 2021, and the highest for the time of year since 2017.

Related columns:

- U.S. container freight is shrinking (Reuters, Nov. 16)

- Recession by any other name will still reset the economy (Reuters, Nov. 2)

- U.S. diesel shortage increasingly likely until economy slows (Reuters, Oct. 27)

- Diesel’s gloomy message for the global economy (Reuters, Oct. 14)

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