Slide 6 of 17
Total distillate stocks rose only marginally in November, to about 117 million barrels from about 115 million barrels at the end of October. The “normal” or average inventory level at end November is 146 million barrels. Thus, by the end of November, instead of seeing an improvement, US distillate inventories were 30 million barrels less than normal rather than the 26 million barrels less as of the end of October, indicating greater tightness in markets for heating oil and diesel fuel.
If the currently depressed level of distillate stocks continues, the result could be strong upward pressure on prices for the distillate fuels through the winter. In fact, the tightness in distillate markets, particularly in the Northeast, has worsened and left the heating oil market more vulnerable to near-term shocks from potential cold weather events than was expected earlier this fall.
The additional supplies of crude oil released from the Strategic Petroleum Reserve under an exchange program in late October probably prevented the U.S. distillate supply situation from becoming even more tenuous than it is now, but hoped-for levels of distillate in storage by end-November have not materialized. Unless the winter in the Northeast is unusually mild or world crude oil prices drop significantly, the projected high prices for heating oil and diesel fuel will likely continue until next spring.