Diesel Output Is Up and Diesel Demand Is Down. Stocks Are Still Falling.

An inventory falls when what leaves exceeds what arrives. For U.S. diesel this summer, the two obvious explanations both fail. Refiners are making slightly more distillate than a year ago, and American drivers, truckers and farmers are burning slightly less. Stocks are draining anyway.

The week in figures

• Distillate fuel oil stocks: 103.4 million barrels, down 2.2 million on the week
• Against a year earlier: 114.2 million barrels, so stocks are 9.5% lower
• Against the five-year average for the time of year: about 14% below
• Refinery capacity utilisation: 96.8% on a four-week average
• Crude oil inputs to refineries: 17.280 million barrels a day, four-week average

The report covers the week ended August 21 and was published by the Energy Information Administration on August 26.

Production is not the problem

Distillate production averaged 5.218 million barrels a day over the four weeks to August 21, against 5.197 million a year earlier — a rise of 0.4%. Refineries were running at 96.8% of operable capacity on the same four-week basis. There is very little unused refining capacity left to bring in, but nor is output falling.

Neither is domestic demand

Product supplied is the EIA measure of how much fuel leaves the primary distribution system, and it is the closest weekly proxy for consumption. Distillate product supplied averaged 3.798 million barrels a day over four weeks, 2.2% below a year earlier. Total petroleum products supplied averaged 20.5 million barrels a day, down 3.0% year over year.

What is left is the export line

Roughly 5.2 million barrels a day are being made and roughly 3.8 million are being consumed at home. The residual has to go somewhere, and the trade reporting points to the dock. A market report published on August 6 put U.S. diesel exports at a record 1.9 million barrels a day, above a run of five consecutive weeks at about 1.5 million, and attributed most of the flow to Europe, where refining capacity has been shrinking and supply is tight. The EIA weekly highlights do not itemise distillate exports separately.

The price alongside it

Retail on-highway diesel averaged $5.652 a gallon on August 24, up $1.944 from the same week a year earlier. Regular gasoline averaged $4.085. Gasoline stocks were 206.8 million barrels, 7.0% below the year-ago level and about 6% under the five-year average; crude oil stocks, at 428.9 million barrels, were roughly 1% above their five-year average. The tightness is concentrated in refined products, not in crude.

Why it matters

Distillate is one barrel doing several jobs: highway diesel, off-road and farm fuel, and heating oil in the Northeast. The stock number is the buffer that absorbs a cold snap or an unplanned refinery outage. Entering the autumn about 14% below the five-year average, with refineries already running near their limit and the export pull intact, that buffer is thinner than usual — which is a statement about how little slack the system holds, not a forecast of what the price will do.