Slide 3 of 25
Notes:
- While crude oil prices will be a major factor impacting distillate prices this winter, another important factor is the U.S. distillate supply/demand balance, as measured by distillate stocks.
- The distillate supply/demand balance influences the spread between spot distillate and spot crude oil prices. For example, when stocks are higher than normal, the spread will be lower than usual. This spread is the price incentive that encourages or discourages changes in supply.
- While high stocks in the distillate market are good news for consumers, an excess is bad news for refiners.
- Distillate spreads during the winter of 1998-99 and throughout most of 1999 were well below average. Distillate stocks were very high during this period, partially as a result of warm weather keeping demand down.
- Last winter (1999-00) began with high stocks and low distillate spreads (4 cents below average in September). Then in December, stocks began a decline that continued into January. In January, spreads increased dramatically.
- In June of this year, distillate spreads had dropped to 2.5 cents per gallon as a result of crude oil prices increasing faster than product prices. But by July spreads had strengthened to over 7 cents per gallon, and in the first two weeks in August they have averaged 12 cents, which is almost 6 cents above average --indicating stocks are low.
