Changes in demand trends, trade patterns and fuel specifications have significantly reduced the role of traditional seasonal factors in driving U.S. distillate markets. Historically, distillate use in the United States was highly seasonal because of its use as a home heating fuel. In recent years, use of distillate as a heating fuel has decreased significantly, while its use as a transport fuel has remained relatively flat (Figure 1).
Distillate stocks, which were traditionally drawn down during winter in recent years, have shown little change or even have built over the October – March winter heating season (Figure 2). However, exports of distillate fuels—a growing portion of the overall disposition of U.S. distillate production—have actually become more seasonal in recent years, but because the net export peak occurs in the summer months, this change serves to offset the winter peak in domestic heating demand (Figure 3).
Distillate fuel has a variety of uses (Figure 1), primarily on-highway transportation for both light- and heavy-duty vehicles. Distillate fuel is also used as a heating fuel in homes and businesses; as a fuel for certain industrial processes, agriculture and farming; and, to a lesser extent, as a fuel for electricity generation. While use of distillate for home heating has decreased, the share of distillate used for transportation has increased. U.S. consumption of distillate went from 2.9 million barrels per day (b/d) in 1985 to 4.0 million b/d in 2015. In 1985, 504,000 b/d (18%) of U.S. distillate sales/deliveries were to residential customers, presumably for home heating use, and 1.1 million b/d (40%) of sales/deliveries were to on-highway transportation customers.
In 2015, the residential customer sales/deliveries were down to 260,000 b/d (7%), while on-highway transportation sales/deliveries increased to 2.5 million b/d (64%). This trend is even more prominent on the East Coast, where residential sales went from 395,000 b/d (36%) of sales/deliveries in 1985 to 241,000 b/d (19%) of sales/deliveries in 2015, compared with on-highway transportation sales/deliveries increasing from 354,000 b/d (32%) to 717,000 b/d (58%) over the same time period.
Distillate sales to the commercial sector followed a similar annual pattern of decline as the residential sector. The decreasing use of distillate for heating by residential and commercial customers and the increasing share of distillate used for on-highway transportation, which does not display significant seasonal variation, removes much of the traditional seasonality in overall domestic demand for distillate.
Over the same period that home heating use of distillate declined, once-disparate specifications for distillate converged to a common ultra-low-sulfur formulation, reducing the overall volumes and distinct kinds of distillate stocks held and making large swings in inventory levels less common. Historical seasonality in distillate markets is illustrated by the change in distillate inventories during the heating season.
Until recently, inventories consistently started the heating season at a high level and were drawn down, with the lowest inventories of the year typically coming just at the end of the heating season. This seasonal pattern held true in Energy Information Administration (EIA) monthly U.S. distillate inventories every year between 1945 and the 2007 – 2008 winter season. The winter of 2008 – 2009 marked the first time on record where distillate inventories increased over the October – March period. More recently, distillate inventories in March were higher than in October for three of the past five heating seasons (Figure 2).
The volume and seasonality of distillate exports, which are highest outside of the heating season, have grown in recent years. These changes have made exports a more important offset to the seasonality from heating oil demand that still peaks in the winter, albeit at much lower volumes compared with prior to the decline in the use of distillate as a residential heating fuel. U.S. distillate exports have grown to 1.2 million b/d in 2016 and set a new monthly record high of 1.5 million b/d in May 2017. As export volumes have increased, so too has the size of the seasonal swings between winter and summer. Since 2013, distillate exports outside of the heating season were, on average, 161,000 b/d higher than during the heating season, compared with an average of 116,000 b/d higher from 2009 to 2012 (Figure 3).
U.S. Average Regular Gasoline Retail and Diesel Fuel Prices Increase
The U.S. average regular gasoline retail price increased 4 cents from a week ago to $2.35 per gallon on July 31, up 19 cents from the same time last year. The Midwest price rose over 6 cents to $2.28 per gallon, the East Coast price increased over 4 cents to $2.31 per gallon, the West Coast price rose less than 3 cents to $2.83 per gallon, the Gulf Coast price increased less than 2 cents to $2.08 per gallon and the Rocky Mountain price increased less than a penny to remain $2.34 per gallon.
The U.S. average diesel fuel price increased 2 cents to $2.53 per gallon, up 18 cents from the same time last year. The Midwest price rose over 3 cents to $2.49 per gallon, the West Coast price rose 3 cents to $2.82 per gallon, and the East Coast, Gulf Coast and Rocky Mountain prices each increased 2 cents to $2.57 per gallon, $2.36 per gallon and $2.62 per gallon, respectively.
Propane Inventories Gain
U.S. propane stocks increased by 1.7 million barrels last week to 67.6 million barrels as of July 28, 2017, 22.3 million barrels (24.8%) lower than a year ago. Gulf Coast, Midwest and Rocky Mountain/West Coast inventories increased by 1.0 million barrels, 0.7 million barrels and 0.1 million barrels, respectively, while East Coast inventories decreased by 0.1 million barrels. Propylene non-fuel-use inventories represented 4.2% of total propane inventories.
Source: Excerpted from the EIA’s This Week in Petroleum report.