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CHICAGO: Recent builds in US distillate stocks have pushed inventories to normal levels for the first time since early 2022, a sign that analysts say may indicate that markets are steadying after several years of wild price fluctuations.

Refiners have been scrambling to meet demand for fuels like diesel and heating oil for nearly two years after a decline in processing capacity and sanctions placed on Russia’s energy sector over Moscow’s invasion of Ukraine prompted supply shortages and global price spikes. Inventories of distillate fuels fell to as low as in 105.2 million barrels in 2022, their lowest level in 14 years.

But strong refining activity, and a prolonged slump in demand from manufacturers and truckers that ship goods, has helped diesel and heating oil stocks climb back to within 3% of the five-year seasonal average for the first time in more than a year.

“The freight market is still pretty weak and its creating less demand for diesel fuel used by heavy duty vehicles,” said Jason Miller, associate professor of logistics at Michigan State University. Seasonally adjusted demand for for-hire trucking in January is down 2%-4% from all-time highs hit in the second half of 2021 and the first half of 2022, according to Federal Reserve data.

Manufacturers are also using less distillate fuels. Production of rubber and plastic products is down almost 5% and furniture manufacturing off nearly 15% from the start of 2022, according to the data. Slowing economic activity has followed higher interest rates, which typically crimp demand, although economists broadly do not expect a recession in 2024.

US fuel makers in recent weeks were running refineries at 93% utilization, the strongest seasonal rate since 2019, to meet distillate demand and make up for downtime during the fall. Distillate stocks climbed by more than 16 million barrels in the past two weeks, and were at 132.4 million barrels in the week ended on Jan. 5, their highest since September 2021, according to the US Energy Information Administration.

The stock builds came as demand for distillate products for heating also lagged, with the four-week average for diesel and heating oil demand remaining below the five-year seasonal average since November, according to EIA data.

Demand for distillate fuels, such as diesel and heating oil, usually peaks in winter due to increased heating needs in residential, commercial and industrial sectors.

The rising stocks have driven down retail diesel prices that topped $6 a gallon in 2022. Diesel prices are now about 15% lower than a year ago, averaging $3.94 a gallon on Thursday, according to the American Automobile Association (AAA).

An Arctic blast expected to blanket the US in coming days, however, may draw down stocks for heating use, analysts said this week.

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