Summer Midwest distillate inventories rise amid high production and transit constraints
Midwest distillate inventories increased rapidly in June and early July due to increased regional refinery production and limitations on moving distillate and other products outside the region. Distillate fuel oil includes products such as diesel fuel and heating oil. In the five weeks between June 9 and July 14, regional distillate inventories increased 18% (4.7 million barrels). Prior to June, Midwest regional inventories had been trending near or below the bottom of the previous five-year (2018–22) range.
Midwest distillate inventories for the week of July 14 were the highest since February 2022. The Midwest has historically sent refined products, including distillate, to the East Coast for consumption and to the Gulf Coast for export. From June 1 through this September, the barge shipping lanes on the Illinois River that connect Lake Michigan and the Mississippi River are limited because of maintenance on the locks and dams. Several of the locks and dams are scheduled to be closed for an estimated four months. The maintenance is limiting the ability to move products out of the Chicago region by barge to other markets.
Movements of refined products from the Midwest historically flow by a combination of pipeline, rail, and river barge shipments. In 2022, barge and tanker transfers accounted for about 40% of total distillate transfers from the Midwest to the East Coast and about 4% of transfers from the Midwest to the Gulf Coast. Amid relatively high refinery production, the regional infrastructure constraint has increased inventories of diesel (in particular) and gasoline in the Midwest.
Distillate production increased as crude oil inputs to refineries in the Midwest climbed to the highest levels this year in July. The recent production increase reflects refinery capacity coming back online after the intensive maintenance season. The 150,000-barrel-per-day (b/d) Cenovus Toledo refinery (formerly the bp-Husky Toledo refinery) restarted in June 2023. A fire at the refinery in September 2022 had resulted in a long-term outage that reduced Midwest regional refinery production until the refinery resumed operations under Cenovus. Cenovus also restarted the 40,000 b/d Superior refinery in Wisconsin in April 2023.
The outlook for overall U.S. distillate inventories is beginning to look tighter in the second half of summer even as Midwest inventories remain higher compared with other U.S. regions. Midwest distillate demand typically increases during the fall when diesel-powered agricultural equipment harvests crops. The ongoing Illinois River lock maintenance is likely to limit Midwest transfers to other regions through September, at which point we also expect significant distillate inventory draws to meet local demand from the harvest season.
Principal contributor: Kevin Hack