EIA: High Diesel Demand Leads to High Prices and Tight Inventories as Winter Approaches
Strong demand for Ultra Low Sulfur Diesel (ULSD) in October, combined with reduced global production, led to lower inventories of ULSDs in the United States, according to the US Energy Information Administration (EIA). ULSD is the most widely consumed form of distillate fuel oil.
Current inventory and current estimate of future demand can be combined into a measure called days of supply, which is calculated by dividing inventory (in barrels) by estimated demand (in barrels per day) to get the number days that stocks alone could meet demand. In October 2022, the United States had 25 days of distillate supply, the least since 2008, the EIA said.
Days of supply in the United States between 2017 and 2021 averaged 34 days. U.S. distillate fuel oil inventories are below their five-year (2017-21) low since the start of 2022.
Days of supply, however, is not a complete snapshot of distillate fuel oil availability, as it does not take into account production, imports, or any source of supply other than inventory.
In October 2022, the spot price for ULSD in New York Harbor averaged $4.36 per gallon, the highest monthly price since May 2022. Rising diesel prices, both in the States United than globally, is the result of a number of factors, such as tight global inventories, reduced refinery production in Europe following labor strikes and the onset of seasonal distillate demand as domestic heating fuel.
Reduced refining capacity in the United States and around the world since 2020 is a major reason for low distillate inventories in the United States. Distillate fuel consumption this year, through August, remained below pre-pandemic levels, but was higher than in 2020. Higher distillate consumption combined with lower distillate production contributed to the decline in inventory. The increase in demand in October, as measured by product supply, contributed to increased pressure on these inventories and resulted in fewer days of supply in October compared to September.
The Northeast — the New England and Mid-Atlantic regions combined — has even tighter stocks than the U.S. average. Lower inventories contributed to higher prices in the region. US demand for distillates is seasonal; more specifically, consumption increases in winter because it is used for domestic heating, mainly in the northeast.