Diesel and furnace oil inventories at lowest in 20 years as United States braces for winter

Through Lucie Kasai to 07/10/2021

(Bloomberg) – The United States could head into winter with the lowest inventories of heating oil to meet growing demand for more than two decades.

Stocks of distillates – used as diesel for transportation and heating oil – are sufficient to meet 31.2 days of demand, according to the Energy Information Administration. It’s the tightest it has been for this time of year since 2000.

Diminishing supplies raise the specter of energy shortages and price spikes in the United States this winter, at a time when the rest of the world has already been shattered by fuel shortages and blackouts. They also highlight how the economic rebound from the Covid-19 pandemic, an increase in demand for virtually all goods and a subsequent trucking boom are now colliding with volatile energy markets, threatening to increase the cost of fuel. fuel for owners, farmers and truckers.

The diesel record will not be as bad as the gas crisis in Europe, Suzanne Danforth, analyst at Wood Mackenzie Ltd., said in a telephone interview. “But it’s going to be tight, very tight.”

Nymex diesel futures are trading near $ 2.45 a gallon after hitting a seven-year high earlier this week.

The tightness is largely the result of the freeze in Texas in February that shut down 18 refineries. Up to 5.5 million barrels per day of processing capacity has been taken offline by arctic temperatures, causing gasoline and diesel inventories to drop.

The pressure could get worse before it improves, as truck drivers react to increased online shopping and historic delays in the global supply chain. Midwestern farmers came out with their tractors to harvest the second-largest corn crop ever. The timing couldn’t be worse, with many US refineries typically shutting down production at this time of year to perform maintenance.

In the Midwest, dry weather, including severe drought in parts of the Midwestern agricultural belt, has sped up harvests this year. For corn, the biggest American harvest, the harvest was already 29% complete on Sunday, the fastest pace in three years.

Some supply relief is expected in November and December when the refineries return from maintenance.

“The distillate margins are very attractive and the refineries will revert to full diesel after maintenance is complete,” said Danforth of Wood Mackenzie. And things will improve in 2022, with Gulf Coast refiners operating on average at 88.2% of capacity, very similar to rates seen in 2019, before the pandemic hit, providing a bigger cushion, has added Danforth.

Even if home heating oil prices are trading as high as they are, it may still make sense that some Northeastern utilities are using it this winter instead of natural gas. January’s trade against Algonquin Citygate gas, a proxy for New England, was trading at nearly $ 22 per million British thermal units on Thursday afternoon, according to data compiled by Bloomberg. This compares to around $ 13.90 for January diesel futures when converted to mmbtu.

Steve R. Hansen

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