Diesel prices are below normal—and they could rise this year as North American and Western European economies come out of a teetering recession this year and business activity perks up.
Diesel, heating oil, and gas oil inventories have been hovering below the ten-year seasonal average across North America, Europe, and Singapore in January, which has been placing upward pressure on fuel prices.
According to Reuters, investors have already acquired a position of 56 million barrels in the two major futures and options contracts for middle distillates, which is an increase of 36 million barrels from the positions held in December.
Behind the price rise prediction is U.S. manufacturing activity, which are expected to return to growth after a couple of years of downturn—an unusually long and drawn-out slowdown. European manufacturing activity, too, is showing signs of a turnaround and expectations that it will return to growth by the end of this year. Traders are also expecting governments the U.S. Federal Reserve and the European Central Bank to cut interest rates this year, further propping up manufacturing activity, drawing down middle distillate inventories and helping to prop up middle distillate prices.
According to the EIA’s latest edition of the Weekly Petroleum Status Report (WPSR) published each Wednesday, distillate fuel inventories are 5% below the five-year average for this time of year in the United States, standing at 130.8 million barrels as of January 26. In Europe, inventories are also roughly 5% below the 10-year average. In Singapore, inventories are even lower, at 33% below the 10-year average as of January.
Should gasoil inventories continue to tighten and the manufacturing uptrend continues, and if OPEC+ manages to elevate crude oil inventories and prices, “there is a potential for a sharp rise in diesel prices in 2024,” John Kemp wrote for Reuters on Tuesday.
By Julianne Geiger for Oilprice.com
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