September 4, 2023 [Reuters]- Americans could face a sticker shock with their heating bills this winter, especially if it is a chilly one, due to unusually low U.S. stockpiles of distillate fuels following OPEC+ crude supply cuts and higher demand from Europe, analysts said.

Distillate inventories, which include diesel and heating oil, were by late August about 15% below the five-year average for this time of year, according to the Energy Information Administration.

At below 118 million barrels, stocks represented around 31 days of supply.

“We are living barrel to barrel and there is just no room for errors in the system,” Price Futures Group analyst Phil Flynn said. “If we get a cold winter, there are going to be significant price shocks.”

Refiners have failed to build sizable stocks ahead of the seasonal surge in demand due to tight supplies of medium and heavy crude oil grades that are distillate-rich.

Production cuts by the Organization Petroleum Exporting Countries and its allies, known as OPEC+, have already squeezed global market for medium sour crude and middle distillates, which will be further tightened by Saudi Arabia’s unilateral cuts, said Bjarne Schieldrop, chief commodity analyst at SEB.

In addition, U.S. exports have helped to deplete stockpiles of the fuel amid strong demand from Europe after Russia’s invasion of Ukraine last year led to sanctions on Moscow’s energy trade.

Inventories have also failed to build despite lackluster U.S. demand in the first half of this year as consumer spending shifted to services over goods.

Weekly distillates products supplied, a proxy for demand, has averaged 4% lower year-on-year and below the previous five-year average, according to EIA data.

Reflecting the tightness in the market, U.S. diesel futures briefly jumped to a seven-month high on Aug. 25 after a fire at Marathon Petroleum’s (MPC.N) 596,000 barrel per day (bpd) refinery in Garyville, Louisiana, the third largest in the U.S.

These outages are also a sign that U.S. refineries are due for heavy maintenance through autumn, Mizuho analyst Robert Yawger said. Seasonal overhauls could take out around 2 million bpd of the country’s 18.1 million bpd refining capacity, he said.

Distillate prices, and refiners’ profits from making it, will likely will rise further over the near-term on the weak inventories, Bank of America analysts said last week.

“Even with soft demand, diesel inventories are stubbornly low, and cracks have rallied in search of supply or demand-side relief before winter,” the analysts said.

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