Analysis: U.S. Road Fuel Stocks Plummet as Refiners Adapt


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- The closure of the Strait of Hormuz has accelerated domestic 
inventory draws to an unprecedented pace. Total U.S. petroleum stockpiles have 
plummeted to their lowest in more than two decades, and did so much faster than 
is typical for this time of year, Energy Information Administration (EIA) data 
recently showed.

   Releases from the Strategic Petroleum Reserve and soaring international 
demand for U.S. crude oil have drawn on inventories at the fastest pace on 
record.

   Combined commercial and strategic stocks have fallen between their 
early-April and late-May peak by more than 87.2 million bbl, or nearly 10%. 
Over the last six weeks alone, they shrank at an average pace of 1.9 million 
bpd.

   The release so far of nearly 58 million bbl of crude oil from strategic 
reserves counteracted some of the pull that record-high exports exerted on 
commercial inventories, which reversed from 3% above the five-year average to 
3% below in just a matter of weeks. Commercial crude stocks now find themselves 
back in line with year-ago levels and long-term averages, in stark contrast to 
inventories of road fuels like diesel and gasoline.

   Nationwide gasoline inventories have fallen to their seasonally lowest in 
decades, and stocks of distillate fuel oil recently slumped to a 23-year low. 
Refined fuel exports from the U.S. have surged amid the shut-in of millions of 
bpd of refined product flows from the Persian Gulf and a global refining trough 
caused by the sudden absence of more than 10 million bpd of crude oil supply.

   Sky-high international demand, however, wasn't the only culprit behind the 
rapid decline in domestic inventories.

   Refiners Adapt

   U.S. refiners have adapted to the supply crisis by maximizing output of the 
most affected products. Soaring jet fuel prices, export demand and favorable 
cracks propelled domestic refiners to raise jet fuel output at the cost of 
production of other refined products like gasoline and diesel. Kerosene-type 
jet fuel output has held above the 2 million bpd mark since the second half of 
April, and averaged more than 2.04 million bpd throughout May.

   The outsized and early increase seen over the past seven weeks went above 
and beyond the normal seasonal phenomenon. In May, domestic jet fuel output was 
up nearly 10% year-on-year, compared to the 4.6% gain in the first two months 
of the year.

   This change in product yields has added to the strain on road fuel 
inventories. Higher seasonal demand for gasoline may lift light distillate 
cracks over the coming weeks, but the export pull on inventories is unlikely to 
recede until Middle Eastern flows are restored.

    




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