Traders are scrambling to fill up storage tanks along the U.S. East Coast with distillate fuels, like diesel and heating oil, as weaker-than-expected demand weighs on refiners’ profits. Data from storage broker The Tank Tiger shows that distillates storage demand at New York Harbor has jumped to around 300,000 barrels this month, up from virtually no bidder interest in March.
The warmer-than-expected winter weather in the U.S. Northeast and Europe has cut distillates demand, leading to a drop of more than 30% in the spreads between U.S. crude and diesel futures, or “cracks” that reflect refining margins, so far this year. Struggling to find outlets for their excess distillates, traders are rushing to park it in storage tanks in New York Harbor, which allows them to export to Europe later in the year when demand improves.
Distillates in storage rose by a surprise 1.6 million barrels in the week ended April 19 to 116.6 million barrels, as demand fell 5% from the prior year to 3.55 million barrels per day, the weakest for this time since 2022, according to government data. This has pushed diesel futures into contango, a market structure where a commodity’s current prices are lower than future prices, for the first time since 2021 in Europe and since June 2023 in the U.S.
Refineries along the East Coast and West are switching to producing more gasoline than distillates, which should alleviate some of the oversupply and help margins recover, according to Phillips 66. The company noted that diesel cracks are seasonal, with natural winter-strength and natural summer weakness, and believes the market will improve.