US Diesel Inventories Declined For A 7th Straight Week, Keeping Total Stocks At The Low End Of The Seasonal Range

It’s been a choppy start to Thursday’s trading with energy futures flipping back and forth between gains and losses, after some bullish demand figures in the DOE report Wednesday sparked a healthy rally.

Energy markets appear to be shrugging off news that the latest Houthi Missile attack caused the first fatalities aboard a merchant ship in the Red Sea conflict while new reports suggest the undersea cables that were cut last week may have been caused by a sinking ship.

US diesel inventories declined for a 7th straight week, keeping total stocks at the low end of the seasonal range even though PADDs 2 and 4 remain at the top end of their seasonal range. The wildcard in diesel stocks of course is PADD 5 where the renewable diesel that’s been flooding the west coast over the past several months still doesn’t show up in the weekly stats, meaning total stocks are likely 4 million barrels or so above the official PADD 5 estimate, which is why we’re seeing weak basis values despite the DOE showing inventories below their seasonal range. The DOE’s estimate for diesel demand also saw a huge increase last week, marking a 4th week of big back and forth swings, proving more that the agency’s estimates are error prone than anything else. The good news if you’re a diesel producer is that the DOE’s figures are understating diesel demand somewhere in the 4-5% range due to RD not being factored into the numbers.

Gasoline stocks declined for a 5th straight week, following their typical seasonal pattern of drawing down inventories as the spring RVP transition kicks in. One major difference in the gasoline figures compared to the past few years is that the East Coast (PADD 1) is actually seeing inventory builds thanks in large part to above average imports and the return of previously idled local refining capacity, whereas PADDs 2 and 3 are seeing big declines. That excess supply stretching from New York to New England looks like it’s already backing up demand for resupply, which helps explain why Colonial Line 1 space is trading for minus 5 cents/gallon these days. That overhang will need to be dealt with in the next several weeks if shippers are going to get their tanks turned ahead of the spring deadline.

As expected, refinery runs saw a large increase of nearly 5% last week as several of the country’s largest refineries return from maintenance. The Gulf Coast refining hub is now running at higher rates than it was this time last year, but remains far below where runs were prior to the January freeze.