Analysis: Global Supply Crunch Depletes U.S. Diesel Stocks


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- U.S. distillate fuel oil stockpiles continued to draw down 
and dwindled to a 30-year seasonal low last week, amid unprecedented export 
demand fueled by tightening supply fundamentals.

   Despite refiners running near maximum capacity and increasing diesel output, 
distillates stocks fell 1.5 million bbl to 105.6 million bbl, the lowest for 
the corresponding reporting week since 1996, according to the Energy 
Information Administration's latest Weekly Petroleum Status Report.

   With the closure of the Strait of Hormuz and the loss of around a fifth of 
global petroleum liquids supply, the U.S. became the swing supplier of both 
crude oil and refined products, with exports in every category soaring to 
record highs. While the Middle East crude supply disruption has eased from its 
peak in March and April, refined fuels supply, suffering from both the lack of 
Persian Gulf exports and months of crude-shortage-induced low refinery runs in 
Asia and elsewhere, remained tight. In addition, Ukrainian attacks on Russia's 
refining sector have over the past months taken offline anywhere from 20 to 40% 
of the country's refining capacity, sparking fuel shortages and export bans 
from an important global diesel supplier.

   Product exports from the U.S., particularly of diesel, have, in contrast to 
exports of crude oil, consequently sustained a near-record high pace. Over the 
past four weeks, U.S. exports of distillate fuel oil averaged just over 1.8 
million bpd, up 439,000 bpd, or 32.2%, year-on-year. This surge in 
international demand dwarfed the 100,000-bpd uptick in domestic production, 
leading to a deficit that has brought nationwide stockpiles to their seasonally 
lowest in three decades.

   At 105.6 million bbl, they are now 9% below the already historically 
depressed levels of last year, and are trailing the five-year and ten-year 
seasonal averages by 12.8% and 22%, respectively. At these levels, inventories 
could meet just over 28 days of current domestic demand, compared to more than 
31 days in August 2025 and 34.5 days in August 2024.

   Refining margins, after months of global supply disruptions already at 
multi-year highs, have with the divergence between global crude oil and product 
balances recently set new records. Earlier this week, fresh attacks on tankers 
and refineries in and around the Persian Gulf catapulted U.S. diesel margins to 
unprecedented highs. The ULSD crack -- the price difference between a barrel of 
the most actively traded NYMEX ULSD and WTI contracts -- on Monday breached the 
$100 bbl mark for the first time in history.

   This will keep U.S. refiners incentivized to run as hard as possible and 
prioritize diesel yields over those of other, less profitable fuels. This, in 
turn, raises the risk of refinery outages, which can tilt the already skewed 
supply-demand balance even more, especially given the lack of spare production 
capacity both at home and abroad.




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