Analyzing US Distillate Inventories and Diesel Prices

US distillate inventories 

The EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report on October 4, 2017. It estimates that US distillate inventories fell by 2.6 MMbbls (million barrels) to 135.4 MMbbls on September 22–29, 2017. Inventories fell 1.8% week-over-week and by 25.2 MMbbls or 15.7% from the same period in 2016.

Earlier, a market survey estimated that US distillate inventories would have fallen by 1.8 MMbbls on September 22–29, 2017.

US diesel futures rose 1.3% and closed at $1.77 per gallon on October 4, 2017, due to the larger-than-expected fall in distillate inventories. Diesel and US crude oil (SCO) (DBO) usually move together, as you can see in the following chart. However, their prices diverged on October 4, 2017.

Analyzing US Distillate Inventories and Diesel Prices

Moves in crude oil prices impact oil producers and energy ETFs like the Energy Select Sector SPDR ETF (XLE), the Vanguard Energy ETF (VDE), the VanEck Vectors Oil Services ETF (OIH), and the Alerian MLP ETF (AMLP).

US diesel prices are near a 26-month high. Higher diesel prices have a positive impact on refiners (CRAK) like Holly Frontier (HFC), PBF Energy (PBF), and Alon USA Energy (ALJ).

US distillate production and demand 

US distillate production rose by 290,000 bpd (barrels per day) to 4.9 MMbpd (million barrels per day) on September 22–29, 2017. Production rose 6.3% week-over-week and by 216,000 bpd or 4.6% from the same period in 2016.

US distillate demand rose by 261,000 bpd to 4 MMbpd on September 22–29, 2017. Demand rose 7% week-over-week and by 132,000 bpd or 3.4% from the same period in 2016. The rise in distillate demand is bullish for diesel and crude oil (USL) (DTO) prices.

Impact 

US distillate inventories fell for the fifth consecutive week. The inventories have fallen by 16.8 MMbbls or 11.1% in the last 15 weeks. A fall in distillate inventories could benefit diesel and crude oil (UWT) (DWT) prices.

For some crude oil price forecasts, read Crude Oil Price Forecasts: Downgraded for the Fifth Month.

Read Are US Crude Oil Supplies Getting Bearish for Oil Prices? and Crude Oil Has Risen since June: Time to Short Crude Oil Futures? to learn more.

Read An Opportunity in Natural Gas? for updates on natural gas.