EIA sees distillate inventories staying at multi-year lows
U.S. distillate fuel oil inventories are expected to fall to multi-year lows and stay there through most of 2027, the U.S. Energy Information Administration said on Wednesday, warning that diesel and heating oil prices could stay elevated due to strong exports and constrained global supplies.
Diesel prices hit record highs last week. As of Wednesday, they were up more than 58% since the U.S.-Israeli conflict with Iran began in late February, disrupting shipping through the Strait of Hormuz, a vital trade route that had carried about 20% of global oil supplies.
In its Short-Term Energy Outlook, the EIA forecasts distillate fuel oil inventories, which include diesel and heating oil, will fall below 100 million barrels in September and remain below the five-year low through much of 2027.
The report was finalized on September 3, before the latest escalation in Middle East tensions. The U.S. and Iran have exchanged attacks on shipping and energy infrastructure since last weekend, pushing Brent crude futures LCOc1 above $100 a barrel on Wednesday. O/R
Tight global distillate supplies have boosted diesel prices, encouraging U.S. refiners to send more barrels overseas. U.S. net distillate exports have been at or near five-year highs every month since February, according to the agency.
The EIA expects distillates exports to remain elevated in coming months as global distillate production stays below year-ago levels following loss of large amounts of supply from the Middle East, Russia and China.
The agency projects average U.S. diesel crack spreads, a measure of refining margins, will remain above $2 a gallon from August through November before gradually easing through mid-2027.
U.S. diesel crack spread HOc1-CLc1 surged to a record high of $106.23 a barrel or about $2.57 a gallon last week, LSEG data showed.
Diesel supplies are about to enter a seasonally tight period. Distillate consumption typically rises in the fall as farmers harvest crops, while refinery production often declines during fall maintenance season.
Low inventories could also leave consumers more vulnerable to price spikes this winter, particularly in the U.S. Northeast, where distillate supplies are used for residential heating oil.
"Rampant refining margins may incentivize US refiners to run as hard as possible, but inventories are unable to build because the U.S. remains the supplier of last resort," said Matt Smith, an analyst with Kpler, adding that supply losses in these three areas needs to be resolved for global tightness in the diesel market to be addressed.
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