It is too bad you can’t run your truck, boiler or factories on crude oil. The American Petroleum Institute (API) reported another massive 7.83-million-barrel crude build led by an equally massive 3.07-million-barrel increase in Cushing Oklahoma. The number was shockingly bearish, but the oil products numbers told a much different story.
The API reported yet another 3.64 million drop in U.S. distillate supply, driving inventories to well below average range for this time of year and could raise concerns about the potential of shortages of supply this winter. U.S. refiners really need to start to turn this around because it is not just the U.S. that is short of supply but also Russia and China, just to name a few. Gasoline supply did not do much better falling by 1.209 million barrels but still well above average for this time of year.
Refining margins are good and that should help, but they will need to run at a record pace to try to meet demand and let’s hope winter is not too cold or it might be tough to stop a big distillate price spike. My trucker friends already know that they are not seeing the price drop at the pump that we’re seeing in gasoline. And it probably won’t get much better anytime soon. Regardless, while the complex right now is being driven by weakness in the crude price when winter comes, we will be driven by distillate.
The Energy Information Administration (EIA), in their “Short-Term Energy Outlook”, said that distillate inventories declined from September to October, which was the first monthly decline since May. U.S. refiners produced a record level of distillate from June through September 2018, which helped to rebuild inventory levels after they fell in May to the lowest level in four years. However, distillate production declined in October, and consumption combined with exports increased, leading to the September to October decline in inventories. ULSD crack spreads were also supported by a tight international market for distillate fuel. In other words, users of diesel need to be hedged because with supply this tight there are significant upside price risks.
