December 14, 2022 - U.S. Retail diesel prices have been steadily declining for more than a month. According to the EIA, the average price of retail diesel is $4.754/Gal as of December 12, down from $5.141 on November 28. Prices have been slowly falling since November 7. A combination of declining demand and growing inventories could have fueled recent declines in the price.
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Distillate fuel inventories (the chart on the left) rose by 6.2 MMBbl/d for the week ending December 2 due to the refinery utilization rate climbing to the highest since 2019. Inventories have risen by a total of 14 MMBbl in the eight weeks since October 7. Stocks have increased from nearly 20% below the five-year average on November 8 to 9% below the five-year average.
The large builds came even though demand for the product usually increases during the colder winter months when the fuel is used for space heating. However, EIA’s U.S. Distillate (mostly diesel) products supplied (the chart on the right), which is a proxy for consumption, fell to 3.55 MMBbl/d for the week ending December 2 compared to 4.257 MMBbl/d for the week ending October 28.
Additionally, the 0.622 MMBbl/d Keystone Pipeline remains closed after last week’s leak, and TC Energy is aiming for a segment to restart partially on December 14 and a full restart on December 20. The shutdown of Keystone will limit deliveries of Canadian crude to the Gulf, where refineries process it or export, and the U.S. storage hub in Cushing, Oklahoma. Analysts expect pump prices may start to increase if the pipeline is offline longer than a week.
Nevertheless, we see a risk to the upside in the product market ahead of the impending sanctions on Russia's refined products. Contact info@aegis-hedging.com if you have questions about how AEGIS can help with your exposure to floating price risk.