14 April 2022
Global distillate inventories remain low but have shown some signs of stabilising as the business cycle slows in response to inflation, coronavirus outbreaks and increased uncertainty following Russia’s invasion of Ukraine.
In the United States, distillate fuel oil inventories fell by 3 million barrels to 111 million in the week to April 8, according to high-frequency data from the Energy Information Administration.
Distillate stocks are 28 million barrels (20%) below the pre-pandemic five-year seasonal average and at the lowest level for the time of year since 2008 (“Weekly petroleum status report”, EIA, April 13).
Based on stock movements in previous years, inventories are expected to fall as low as 105 million barrels before the end of June, with the forecast minimum ranging from 97-111 million barrels.
Stocks have been tight since the start of the year but the situation has stabilised since early March with some of the more extreme downside inventory scenarios receding.
High prices for all petroleum products but especially middle distillates such as diesel, heating oil, jet fuel and gas oil are blunting consumption growth.
More importantly, there are signs consumer and business spending has started to decelerate under pressure from inflation, increased uncertainty and supply chain disruptions.
As the pandemic has receded, consumer pending has also begun to rotate from distillate-intensive manufactured products to less distillate-intensive services.
In Europe, too, distillate stocks are low but have stabilised since the start of March in response to high prices and slowing consumption.
Europe’s distillate inventories amounted to just 392 million barrels at the end of March, the lowest for the time of year since 2015, according to estimates compiled by Euroilstock.
But inventories had risen by more than 12 million barrels compared with the end of February, the largest seasonal increase for more than two decades.
The last time stocks rose this rapidly between February and March was in 2008, when surging crude and diesel prices and diminishing economic activity also caused stocks to start rising from a very low level.
In Singapore, stocks have fallen to just 7.6 million barrels, the lowest seasonal level since 2008, and the storage hub is the tightest of all the regions.
Distillates are the most cyclically sensitive of the major petroleum products and a slowdown in consumption growth is normally associated with a mid-cycle slowdown or an end-of-cycle recession.
There are some early signs inventory depletion has slowed or even stopped altogether, with stocks broadly stable since the middle of March, but it will take a few more weeks before any turning point is confirmed.
– Global diesel shortage pushes oil prices higher (Reuters, March 24)
– Global diesel shortage raises risk of oil price spike (Reuters, March 11)
– U.S. diesel stocks set to fall critically low (Reuters, Feb. 17)
– Diesel is the U.S. economy’s inflation canary (Reuters, Feb. 9)
– Depleted U.S. distillate stocks show supply chain pressure (Reuters, Feb. 4)