① The US is currently approaching its peak diesel demand season. Diesel demand in the US exhibits a clear seasonality: late summer/autumn harvest → increased agricultural fuel use → rising diesel demand; subsequently, winter: → increased heating oil demand → further increase in distillate fuel demand. However, current inventories are at historically low levels for this time of year. This creates a combination of low inventory levels and the approaching peak season. Therefore, the diesel market will be more sensitive to supply disruptions.
② The average retail price of US highway diesel reached approximately $5.65 per gallon on August 24th, about $1.94 per gallon higher than a year ago, an increase of over 50%. It is also very close to the historical high of 2022. Therefore, this is no longer simply a matter of "bad inventory data," but rather: tight inventory is beginning to be reflected in end-user prices.
③ The truly dangerous aspect of the US diesel inventory data is not the "low inventory," but rather: US refineries are already operating at near full capacity, yet inventories remain at their lowest levels for this time of year since the 1980s, while agricultural harvesting and winter heating demand are about to increase. Coupled with damage to Middle Eastern refineries, attacks on Russian refineries, and disruptions to transport through the Hormuz region, the current situation appears to be more of a global refined oil supply shortage than just a US inventory issue. This will have a ripple effect on diesel, refining stocks, oil prices, US inflation, and even the Federal Reserve's policies.
