Inflation fears grow as US diesel market tightens

 Inflation fears grow as US diesel market tightens

Low US distillate inventories have tightened the diesel market during the harvest season and ahead of the winter heating season. Supplies of diesel and heating oil could become tighter and more expensive if US manufacturing activity returns to growth soon.

Economic activity in the US manufacturing sector contracted for the eleventh straight month in September, according to a new report Data From the Institute for Supply Management (ISM). But the readings – although they still showed contraction – were more optimistic than in the spring and summer.

The contraction in the manufacturing sector continued but at a slower rate and in September it recorded its best performance since November 2022, said Timothy Fury, Chairman of the ISM Manufacturing Business Survey Committee.

If manufacturing activity picks up soon, demand for diesel, which is strongly tied to the business cycle, is expected to rise, says Reuters columnist John Kemp. Notes.

The rise in diesel consumption could put additional pressure on the already tight U.S. diesel market, and add more pressure Concerns about inflation The rise in trucking and logistics costs would raise the prices of delivered goods.

The return of inflation could make the Fed’s task of managing a soft landing for the economy more complex, just as fears of higher interest rates for a longer period weighed on financial and commodity markets this week.

With inventories low, especially in the Northeast, a rebound in the US manufacturing sector should push up prices of diesel and related products.

In the week ending September 29, U.S. distillate fuel inventories fell by 1.3 million barrels and are now about 13% below the five-year average for this time of year, according to the Energy Information Administration’s latest weekly inventory report. show up.

Refinery outages, changing global oil trade flows, a cautiously upbeat U.S. shipping market, and inventories at some of their lowest levels in years have tightened the diesel market and are likely to tighten further in the coming months, especially if a cold snap occurs. Winter arrives in the Northeast, where supplies of diesel and other distillates are extremely scarce.

While national average diesel prices are lower than they were this time last year, prices have been rising over the past month as crude oil prices increase and inventory levels are lower than usual. As of Oct. 5, the average price of diesel in the United States was $4.554 per gallon, up from $4.452 per gallon a month ago, per gallon. AAA data.

The market for heating oil, diesel and other middle distillates in the Northeast is experiencing unusual tightness right now, ahead of the winter heating season, with inventories near five-year lows, analysts at RBN Energy wrote in a report. analysis this week. They say prices have risen while near-term prospects for rebuilding inventories are “modest at best”.

In the winter of 2022-2023, approximately 5 million U.S. households used heating oil (distilled fuel oil) as their primary fuel for space heating, and about 82% Of those households were in the northeastern United States, according to EIA data.

A perfect storm of heavy maintenance at refineries in eastern Canada and the US, pressure on global diesel supplies, and a resilient US economy with decent manufacturing and shipping demand should put renewed upward pressure on diesel and other distillate prices in the coming months.

“I think we may find ourselves at the end of November with the wolf at the door,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. The New York Times This week, commentary on the US diesel market.

A rise in the price of diesel is not good news for inflation in the United States because it may push consumer prices higher than the Fed expected, creating more obstacles on the central bank’s path to starting to cut interest rates.

Written by Tsvetana Paraskova for

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