Where Did Our Distillate Go? Stocks Low as Heating Oil Season Arrives Monday, 11/13/2017Published by: Housley Carr
U.S. inventories of distillate — especially ultra-low-sulfur diesel (ULSD) and heating oil — are at their lowest pre-winter level in three years after falling during the summer months for the first time since inventory records started being measured in 1982. Rising diesel exports are one culprit; another is the shutdown of a number of Gulf Coast refineries during and immediately after Hurricane Harvey. The good news is that distillate prices have been increasing, as have the margins for refining crude oil into distillate — both encouraging refineries to ramp up their diesel/heating oil production.
For most of 2017 — with the month after Hurricane Harvey hit the western Gulf Coast being a notable exception — U.S. distillate production has been at or near record levels; according to the Energy Information Administration (EIA), through the last week of October, production of ULSD and other distillate has averaged 4.94 million barrels/day (MMb/d) this year, up 3.6% from the same 10-month period last year. But despite the fact that U.S. distillate production is up — and finally back to pre-Harvey levels of more than 5 MMb/d as of the week ending October 27 — distillate inventories, which had been riding high through 2016, have been tumbling for several months in 2017, and are nearing their lowest levels of the past five years.
Most startling of all is that in 2017 distillate stocks fell during the summer months for the first time since EIA started tracking distillate inventories in 1982. Normally, summer is the time to be building distillate inventories in anticipation of the coming winter heating season, not whittling them down. During the summer of 2016, distillate stocks increased by more than 8%, from just under 151 MMbbl to just over 163 MMbbl, and the summer before that (2015), they were up almost 12%. But in the summer of 2017, distillate stockpiles fell by more than 9%, from 152 MMbbl to 138 MMbbl, and by the last week of October they were down another 9 MMbbl to only 129 MMbbl — their lowest pre-winter level in three years.
There are a few reasons for all this, but much of the blame (if that’s the word) goes to U.S. distillate exports. Distillate exports have been on a tear, averaging more than 1.1 MMb/d — eight times their 2005 pace — in 2016 and again so far in 2017. In October, after a down month for exports in September because of Harvey, distillate exports averaged more than 1.5 MMb/d and hit an all-time high of nearly 1.7 MMb/d the week ending October 27. So far in 2017, a record 28% of U.S. distillate production has been exported, up from 24% in both 2015 and 2016 and only 16% in 2010. Exports to Latin America (led by Mexico and Brazil) dominate, accounting for well over half of total exports in recent months, trailed by Europe and Canada.
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