Analysis: East Coast Fuel Stocks Reel from Import Dearth


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- The ongoing global refined fuels supply crunch has left its 
mark on domestic inventories, which continue to hover near seasonal decade 
lows. In some regions of the U.S., fuel stockpile depletion has been much more 
pronounced than in others, revealing structural vulnerabilities stemming from 
limited refining and transportation capacity to an outsized import dependence, 
all while facing increased competition from international buyers willing to pay 
large premiums to secure a cargo of U.S. made fuel.

   Energy Information Administration data published Wednesday (9/30) showed 
nationwide gasoline stocks falling to a nearly 12-year low last week, trailing 
year-ago levels by 7.5%. Distillate fuel oil inventories also posted a decline, 
down 14.9% year-on-year. In the country's main refining hub on the Gulf Coast, 
where fuels production outpaces demand, diesel inventories have over the past 
month risen back in line with normal seasonal levels, closing a nearly 10%-gap 
to long time averages. For East Coast inventories, in contrast, this gap 
continued to widen.

   Distillate fuel oil stocks in PADD 1 typically grow between mid-May and the 
end of August, the period when refiners run their hardest while demand is at a 
seasonal low. This pattern was completely absent this year, with inventories 
sliding continuously throughout the summer months. Despite a few weeks of 
builds, regional stockpiles of diesel and heating oil have barely recovered 
from the record lows reached at the end of August, when they plummeted below 20 
million bbl. At 21.9 million bbl, they are currently 31% below the seasonal 
five-year average and 28.7% smaller than in the same week last year.

   East Coast gasoline inventories, which in contrast to diesel were still 
plentiful at the start of the year, have since March recorded a much higher 
draw pace than is typical, resulting in seasonal record lows and a widening gap 
to long-term averages. This coincided with a prolonged dearth in imports, which 
have since then consistently run some 200,000 bpd below typical levels, or 
30-40% depending on the time of year. As of Friday, regional motor gasoline 
stocks amounted to less than 51 million bbl, down 9.2% year-on-year and 11.7% 
below the five-year average.

   The waiving of the Jones Act, which in theory would render shipments from 
the Gulf to the East Coast economically feasible, has so far brought little 
relief to inventories. The combination of peak seasonal domestic demand and 
high international buying interest, together with a backwardated market 
structure, have provided strong incentives to move inventory fast and keep 
stockpiles just well filled enough to guarantee smooth operations.

   A diesel export ban is equally unlikely to change the situation for the 
better. High prices are not home-made as the U.S. is sitting on a comfortable 
diesel surplus, and a ban on exports would force refiners to slash runs, 
leading to less supply of gasoline and other fuels.




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