Diesel Prices Pressured by Poor Demand, High Stocks
Reported stocks of crude and refined fuels continue to climb in the United States, pressuring on oil prices, but the stock build is concentrated in specific parts of the complex.
Most of the stock build has occurred in crude petroleum and the middle distillates used for road diesel and home heating oil, while gasoline stocks have remained relatively normal.
The result has been a marked weakening of diesel prices relative to gasoline since the second quarter of the year which has spread from the United States to Europe.
According to the U.S. Energy Information Administration (EIA), the total volume of crude petroleum and refined products being stored in the United States hit a record 2 billion barrels this month.
The amount of oil in storage has risen by more than 9 percent from 1.8 billion barrels at the same point last year and is now enough to meet more than 21 days of worldwide consumption.
But of the total, 695 million barrels are owned by the federal government and held in long-term storage as part of the Strategic Petroleum Reserve (SPR) and are effectively off the market.
That leaves just over 1.3 billion barrels of crude and refined products in commercial storage at refineries and tank farms or in transit by pipeline, barge and railroad tank cars.
Commercial stocks have risen by 165 million barrels, or about 14.5 percent, over the last 12 months, according to the EIA ("Weekly Petroleum Status Report" Oct 21).
The surge has been weighted towards crude, middle distillates and propane, while inventories of gasoline and other refined products are up only modestly.
Commercial crude inventories have risen by 99 million barrels, about 26 percent, compared with the same time last year and account for almost 60 percent of the total increase in stockpiles.
Stocks of processed products are up just 66 million barrels, less than 9 percent, compared with 2014, and account for 40 percent of the total increase.
Among the products, stocks of propane are up 20 million barrels (25 percent) and distillates are up 19.3 million barrels (15 percent).
By contrast, gasoline stocks are only 15 million barrels higher than last year, an increase of less than 8 percent (http://tmsnrt.rs/1jYd4nx).
DIESEL SURPLUS
Stocks of refined products began to show an unusual build up beginning in August 2014 and by the end of 2014 were 60 million barrels higher than at the end of 2013.
Since the start of 2015, refiners have mostly succeeded in matching refinery runs to demand and preventing any further increase in inventories.
The year-on-year surplus in refined stocks has remained at 50-85 million barrels since the start of 2015 and is currently towards the lower end of the range at 66 million barrels.
Propane stocks account for almost a third of the surplus and are the result of booming production from wet gas and condensate-rich shale plays.
The rest of the surplus is mostly middle distillates with a smaller contribution from gasoline and residual fuel oil stocks.
Two-thirds of distillate fuel oil is supplied as diesel fuel used by cars, vans and trucks, with smaller quantities consumed on farms, construction sites and railroads as well as heating fuel for homes and offices.
The build up of distillate stocks reflects much weaker growth in demand for diesel compared with gasoline in 2015.
Gasoline demand is up by 4.1 percent so far in 2015 but diesel consumption has risen by just 1.8, according to the EIA's weekly estimates of refined fuels supplied to the domestic market.
The respective numbers during the seven months between January and July are 2.9 percent for gasoline and 0.1 percent for diesel using the EIA's more accurate monthly data.
Diesel prices have been unusually weak relative to gasoline as the market reacts to a combination of high gasoline demand/low stocks and weak distillate demand/high stocks.
Diesel futures are currently trading at a premium of 17-18 cents per gallon over gasoline when they would normally be at a premium of 32-33 cents per gallon at this time of year.
By John Kemp
