Low Distillate Stocks Set Stage for Price Volatility
- This distillate price spike is a classic response to a local supply and demand imbalance that began as a result of low distillate stocks.
- Low distillate stocks in the winter create the potential for price volatility. In this situation, unexpected high demand from cold weather or sudden loss of supply can quickly deplete low stocks in local areas for a time, requiring unusual movement of stock from other areas. As buyers search for product, they bid prices up rapidly, which attracts product, but the time lag can cause prices to rise very high briefly before product arrives.
- Along with the recent rise in crude oil prices, low stocks of distillate fuels left markets in a vulnerable position.
- As we went into our two biggest distillate demand months, January and February, U.S. distillate stocks were very low -- particularly on the East and Gulf Coasts. The East Coast is the primary heating oil region, and it depends heavily on production from the Gulf Coast as well.
- Distillate stocks in the U.S. and Europe were in surplus supply as recently as October, but distillate stocks did not build as they usually do during the late fall, and declined more sharply than usual in December.
- December stocks closed well below the normal range. The unusual drawdown, in contrast to the more normal building pattern, resulted in distillate inventory levels about 3 million barrels lower than the very low stocks at end-December 1996.