Diesel stocks hit a 23-year low, yet futures plunge 7% after the midterms

U.S. distillate inventories, the stock that supplies most of the nation's diesel, fell to their lowest level in more than 20 years last week, even as crude and diesel futures dropped sharply on Wednesday. The two signals point in opposite directions for truckers, and retail pump prices tend to follow the physical shortage more slowly than they follow futures.

What the data shows

The U.S. Energy Information Administration reported on Nov. 4 that distillate stocks fell 3.6 million barrels to 99.3 million barrels in the week ended Oct. 30, according to DTN. That is the lowest since the week ended May 2, 2003. Oil & Gas Journal, also citing EIA data, put distillate inventories 13% below the five-year average.

Refiners were not sitting idle. Oil & Gas Journal reported that refineries ran at 94.5% of capacity and that distillate output eased to 5.2 million barrels a day. Demand was strong: four-week average distillate product supplied rose 8.7% from a year earlier to 4.2 million barrels a day, per the same report.

Why prices fell anyway

Markets looked past the inventory draw. DTN reported that December WTI settled at $88.12 a barrel on Nov. 4, down 8.29% and the sharpest one-day loss since April 17. December ultra-low sulfur diesel futures dropped 7.18% to $4.2055 a gallon, with an intraday low of $4.1710, a 12-week low. DTN tied the selloff to Democratic gains in the Nov. 3 midterm elections and to expectations that Congress will challenge the Iran war policy, plus continuing talks on the Strait of Hormuz.

Retail diesel has not caught up with that move. EIA's weekly survey put the U.S. on-highway average at $6.292 a gallon on Nov. 2, down $0.060 from the prior week. The next EIA reading is due Nov. 10.

What it means for carriers

Futures can fall quickly, but pump prices usually follow with a lag, and that lag can shrink if the sell-off reverses. Low stocks leave the distillate market with little cushion. A cold snap, a refinery outage or a new disruption in the Gulf could lift prices again without much warning.

Fuel surcharge schedules that reset weekly off the EIA average will not show the futures drop until the Nov. 10 reading at the earliest. Carriers should keep fuel purchasing disciplined this week rather than assume relief is here.

What shippers and brokers should watch

Shippers and brokers should expect surcharge tables to stay high near term and to be volatile if the Iran talks falter. Winter heating demand competes with trucking for the same distillate barrels, so low inventories matter more as temperatures fall. Watch the weekly EIA petroleum report each Wednesday for stock changes and the Monday diesel survey for the retail response.

Track the national average on PDI's diesel prices page at /diesel.