Distillate Refining Margins Shrink Worldwide Due to Weak Demand

Margins to refine crude into distillates, including heating oil and diesel, have contracted worldwide due to disappointing demand, prompting speculation that some refiners might start to reduce processing charges.

In the U.S., imports from markets together with Europe have boosted supply, while milder weather has undermined distillate demand, which typically rises throughout winter.

That’s oversaturating a market, especially in the Northeast – the nation’s greatest heating oil marketplace – where inventories are already high.

U.S. distillate margins have contracted to the weakest level since July 2018, plummeting to $18.60 a gallon on Friday, based on Refinitiv data. Benchmark U.S. heating oil futures slipped to the bottom in three months Friday.

U.S. distillate stockpiles last week hiked to the highest seasonally from 2017, with a significant build on the East Shore, while distillate demand fell unseasonably previous week to its weakest since 2017, in keeping with U.S. Energy Information Administration data.

Speculators that had accumulated bullish positions in distillates ahead of new maritime law at the beginning of the year that was anticipated to boost demand for such fuels have started unwinding them as the guidelines change has had limited influence on distillate supplies thus far. This has also eroded distillate margins, they stated.

European diesel margins shrank under their 10-year average for this time of the year to $11.39 per barrel Friday.

Gas stocks in independent storage in the Amsterdam-Rotterdam-Antwerp refining and storage hub had been broadly steady in the week to Thursday at 2.58 million tonnes.