Analysis: East Coast Enters Winter with Record Low Stocks


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- The U.S. is entering winter with historically low distillate 
fuel oil inventories. Stocks on the East Coast, where heating oil remains an 
important heating source in the winter months, are particularly depleted.

   According to U.S. Energy Information Administration data, nationwide 
distillate fuel oil stocks, a category which includes diesel and heating oils, 
ended November at 114.3 million bbl, down 3.2% year-on-year. Despite the builds 
in recent weeks, stocks remained near the low end of the historical range, 
trailing the five-year average by 8.8%.

   In PADD 1 -- or the U.S. East Coast, which ranks as the largest consuming 
region for petroleum-based heating fuels -- inventories of distillate fuel oil 
were even lower by historical standards. According to EIA data, PADD 1 stocks 
of diesel and heating oil were at 28.8 million bbl in the week ending November 
28, down 17.6% year-on-year and 26.7% below the five-year seasonal average.

   U.S. distillate fuel oil inventories hovered near the low-end of historical 
ranges in the first half of the year as the prospect of tariffs and winter 
weather in the first quarter boosted diesel demand. This tightness eased in the 
third quarter, as stocks were being rebuilt much faster than in years prior, 
expanding by 20.78 million bbl in three months, narrowing the gap to the 
five-year average from 24% back into the single digits and found themselves in 
line with the three-year average in the last week of November. Commercial 
diesel and heating oil inventories on the East Coast, in contrast, are still 
5.4% lower than the 3-year average.

   Ultra-low sulfur diesel fuel, which makes up the lion's share of distillate 
fuel oil, may muddy the water when it comes to assessing heating oil 
inventories. High-sulfur fuel oil stocks on the East Coast, for instance, are 
at their lowest in decades, a third less than at the same time last year and at 
only a quarter of the five-year average.

   In the first quarter of this year, the East Coast experienced normal 
temperatures after two back-to-back unusually warm winter seasons, leading to a 
4.5% year-on-year increase in distillate fuel oil demand. While weather 
forecasts imply similar heating demand this winter, the EIA expects 4% less 
fuel oil demand in this heating season given the switching by more households 
to other heating sources.

   Overall domestic distillate fuel oil demand is likely to stay close to 
year-ago levels in the first quarter of next year as retail spending continues 
to surprise to the upside, boosting freight demand in the face of contracting 
industrial activity. At the same time, U.S. refiners are shutting operations 
just as the global diesel market is much tighter than typical for this time of 
year, implying little relief in sight for low inventories.




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