NEW YORK: Low diesel stockpiles worldwide are countering the downward pressure on crude oil prices from rising OPEC+ supply and setting the stage for a third consecutive year of above-normal refining profits.
Diesel, the top component of global fuel demand, has been the lone bright spot in an otherwise lackluster oil market this year as refinery closures and a shortage of crude with higher diesel yields have kept inventories below historical norms, analysts said.
Meanwhile, demand for the industrial and transportation fuel has been unexpectedly strong because of resilient manufacturing activity and cooling demand due to heatwaves in parts of the world.
Tight stocks of diesel have also helped support global oil prices, allowing the Organization of the Petroleum Exporting Countries and its allies to unwind their largest tranche of output cuts months ahead of target, and could justify further supply hikes under discussion.
Global benchmark Brent crude futures have rebounded 15% to around $68 a barrel from this year's lows, hit in May when OPEC+ first began unwinding supply cuts.
"Tight diesel inventories are providing a very strong floor to oil markets in the mid-$60 per barrel range in the short term," Natasha Kaneva, head of global commodities strategy for J.P. Morgan, told Reuters.
US distillate fuel inventories stood at 113 million barrels by August 1, 12% below the five-year average, according to government data.
At Europe's Amsterdam, Rotterdam, Antwerp trading hub, independently-held diesel stockpiles slipped under 13 million barrels for the first time since December 2023.
The tight market has been something of a surprise after analysts and fuel producers earlier this year anticipated that the opening of new refineries around the world would cause a supply glut.
In the latest quarters, however, top global refiners have reported stronger-than-expected profits due to resilient margins.
"If I were a trader, I would be very comfortable going long diesel in the months ahead," said Tom Kloza, an analyst for consultancy firm Turner, Mason & Co.
Tight stockpiles have pushed diesel refining margins higher in recent months.
In the US, ultra-low sulfur diesel (ULSD) futures briefly traded at a $40 premium over US crude futures.— Reuters
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