The recovery in demand for the US distillate has been stalling as stocks soared to nearly four decades high on the back of refiners still increasing production despite the signs of stagnated recovery in the road and air traffic demand.
According to the US Energy Information Administration (EIA), by end-July, the country’s distillate inventories surged to almost 180 million barrels. The figure was the highest since 1982 and continued the track up for the third consecutive weeks.
Distillate products supplied have climbed to 3.7 million bpd in the period, showing a significant rise compared to late May’s lowest since 1998 at 2.7 million bpd.
Refiners ramped up output to the highest level since March, at 79.6% of total capacity, even as gasoline and distillate demand remains 10% below pre-pandemic levels.
Demand is seen to be sluggish as key sectors, including construction and air travel, showed further inventory builds. Demand in the construction sector, which affected diesel consumption, hit a one-year low in June due to declining outlays on private and public projects. Likewise, demand in the US airlines also slumped as the passenger volumes remain to nosedive by 74% year-on-year since the end of June.
Analysts forecast that the next weekly report due on Wednesday would also show another build for last week.
Analyst Artyom Tchen of Rystad Energy commented, “Since the second week of July, the recovery in the road and air traffic volumes has stalled. Since refineries are gradually ramping up operations, regional product oversupplies and stock builds might occur.”
Another factor likely to aggravate the glut would be the upcoming return to operation of the 210,000 bpd Limetree Bay refinery in St. Croix.
