High prices appear to have started to weigh on diesel demand in the United States, where inventories of distillates – made up of diesel and fuel oil – have slowly increased in recent weeks. U.S. distillate inventories are still below the five-year average, but the gap in inventories from previous years has slowly begun to narrow, suggesting high prices are hitting demand, while encouraging greater refinery output thanks at strong refining margins.
In this week inventory report, the US Energy Information Administration said distillate inventories rose 1.7 million barrels in the week to Nov. 18, with production averaging 5.1 million barrels per day (bpd). Distillate stocks are still about 13% below the five-year average for this time of year, but two months ago they were more than 20% below the five-year average for this time of year.
Earlier this fall, U.S. distillate stocks fell to its lowest level for this time of year since 1951, just at the start of the heating season and a few months before the EU embargo on imports of Russian petroleum products, which comes into force in February.
Now, signs have emerged that weaker demand over the past few weeks may have slowly started to rebuild diesel inventories, contrary to seasonal trends. U.S. distillate inventories rose 3 million barrels in the six weeks to Nov. 18, according to estimates by Reuters Senior Market Analyst John Kemp based on EIA data.
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In products supplied – a proxy for implied demand – distillate fuel products supplied have averaged 4.0 million bpd over the past four weeks, down 3.5% from the same period the last year, according to EIA data.
However, as implied demand slowed, refineries increased production rates in the week to November 18, increasing refinery use at 93.9%, compared to 92.9% the previous week. This compares to refinery utilization of 88.6% in the same week last year.
“Higher Refining operations during the week, along with weaker implied demand for commodities, meant that large builds were seen on the refined commodities side,” ING strategists said. said this week, commenting on the EIA report.
Refiners are processing more crude oil to capture still-high refining margins, but demand appears to be cooling, particularly due to high diesel prices, which have not reached this year’s record high as quickly as diesel prices. gasoline.
As of November 21, the average retail price of diesel in the United States was $5.233 per gallon, or $1,509/gal more than at the same time last year. For comparison, the average gasoline price in the United States on the same day was $0.253 per gallon higher than a year ago, according to EIA data.
In New England – where distillate inventories were at their lowest level on record at the start of the heating season and 33% of homes use oil as their main heating fuel – the price of diesel is nearly $6. /gal, at $5.963 on November 21, or $2.297/gal more than last year.
Yet demand for diesel – the economy’s main fuel – is already showing signs of weakness, not least because of high prices.
However, the recent decline in international crude oil prices and lower implied demand in the United States as distillate production increases have resulted in lower US diesel prices.
A total of 47 of the 50 states are seeing average diesel prices fall from their levels a week ago, with diesel prices down more than 10c/gal a week ago in 19 states, Patrick De Haan, Head of Petroleum Analysis at GasBuddy, said Wednesday.
Globally, stubbornly high diesel prices fueling inflation along with slowing economies are expected to lead to to a slight drop in demand for diesel in 2023, the International Energy Agency (IEA) said in its monthly report last week. Last year, global diesel/gas oil demand growth was 1.5 million bpd. Growth this year is expected to be just 400,000 bpd, while next year diesel demand will show a slight decline “under the weight of persistently high prices, a slowing economy and despite the increase from gas to oil,” the IEA said.
By Tsvetana Paraskova for Oilprice.com
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