⁍ Distillate inventories were still 20% above the five-year average last week.

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⁍ But the surplus was down from 22% at the end of August, 27% at the end of July and 29% at the end of June.

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⁍ Forward margins have turned slightly higher, albeit from a very low level, for the first time since June.

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– If US oil refineries are able to bring diesel and other middle distillates (think jet fuel and heating oil) back to normal levels in the first quarter of 2021, it will mark the first time since the Great Recession that US oil consumption won’t be as high as it was, according to Reuters. Distillate inventories were still 20% above the five-year average last week, but the surplus was down from 22% at the end of August, 27% at the end of July, and 29% at the end of June. Refining margins for distillate show tentative signs of recovery, based on futures prices for crude and ultra-low sulphur diesel delivered in March 2021, consistent with a normalisation of stocks in the first quarter. Forward margins have turned slightly higher, albeit from a very low level, for the first time since June, when there were still hopes for a rapid recovery in oil consumption after the first wave of the novel coronavirus. Distillate production has been running 10% below the five-year average, while consumption is down by around 8%. The strategy is starting to pay off, with distillate stocks declining in four out of the last five weeks, after being basically flat over the previous two months. If refiners can hold this course, excess inventories should be mostly absorbed over the next six months, with a resumption of more normal refining activity in the second and third quarters of 2021. The principal risk is a severe resurgence of coronavirus or a second business cycle downturn over the northern hemisphere winter that cuts industrial diesel consumption and jet fuel demand even further.