Platts: U.S. Distillate Output Jumps to 18-Month High

July 22, 2010
U.S. stocks of middle distillates climbed 3.935 million barrels for the week ending July 16 as refiners pushed output to an 18-month high while demand tapered off, an analysis of oil data from the U.S. Energy Information Administration (EIA) showed Wednesday. This analysis and commentary is provided by Linda Rafield, Platts senior oil analyst and editor of the weekly Platts Futures and Derivatives Review, a supplement to Platts Oilgram Price Report.
At 166.575 million barrels, U.S. middle distillate inventories were 33.211 million barrels more than the five-year average and 6.066 million barrels greater than year-ago levels.
Stocks of ultra-low sulfur diesel hit an all-time high of 105.457 million barrels, with stocks on the Atlantic Coast hitting a record 26.295 million barrels, said EIA.
Imports of distillates were up 28,000 barrels per day (b/d) to 174,000 b/d, but very high production pushed stocks to even more plentiful levels. Total output of middle distillates climbed 50,000 b/d to 4.509 million b/d, the highest level since January 2009. The bulk of the increase was concentrated in production of ultra-low sulfur diesel. Output of heating oil dropped 106,000 b/d to 339,000 b/d, while production of ultra-low sulfur diesel jumped 147,000 b/d to 3.779 million b/d.
On a four-week moving average, the 4.425-million-b/d output of middle distillates surpassed year ago levels by 350,000.  
Implied demand* of middle distillates, expressed as a four-week moving average, was 3.596 million b/d. This was up 298,000 b/d from year-ago levels.  On a week-over-week basis, implied demand for middle distillates was down 169,000 b/d to 3.358 million b/d.
Very high levels of middle distillate production and the resultant stock surplus has the potential to trigger a weak pricing environment for refiners this autumn, when demand for diesel and heating oil seasonally begin to ramp up.  
A second bearish surprise in the latest week’s report was a 360,000-barrel build in crude stocks, which is contrary to analyst expectations for a draw of 1.6 million barrels. Higher domestic production and imports were behind the stock build in crude.
Domestic crude production jumped 108,000 b/d to 5.46 million b/d and imports climbed 696,000 b/d to 9.977 million b/d. Imports into the West Coast doubled week-over-week to1.681 million b/d. This contributed to the region’s 1.347-million-barrel build in crude stocks to 53.854 million barrels.
The Midwest also saw a build in crude inventories for the latest reporting week. Stocks advanced 984,000 barrels to 95.541 million barrels. Inventories at Cushing, Oklahoma – the delivery point for New York Mercantile Exchange (NYMEX) oil futures contracts – rose 985,000 barrels to 37.104 million barrels. This was 841,000 barrels less than the all-time high hit two months ago.
Further adding to bearish sentiment was a 1.118-million-barrel build in gasoline stocks, to 222.154 million barrels. The increase in inventories occurred despite a jump in implied demand of 355,000 b/d to 9.435 million b/d.  Gasoline stocks were 10.792 million barrels greater than the five-year average and 6.763 million barrels more than year-ago levels.
*Implied demand is the amount of