Demand for U.S. distillate posted a surprising surge earlier this month thanks to growing international demand.
U.S. distillate inventories fell by 3.2 million barels during the week of May 13 to 152.2 million barrels, according to the U.S. Energy Information Administration.
The inventory draw marked the fifth straight week of falling inventories and was the second largest weekly draw down in May since the EIA began collecting data in 1982, according to Reuters.
The Gulf Coast region accounted for the biggest stock draw with that region’s inventory declining by 1.3 million barrels.
Despite a mild winter, international distillate demand has continued to grow.
An unnamed source at Philadelphia Energy Solutions told Reuters that demand has been especially strong in Europe, South American and India.
“Demand from India is very strong. I am not sure this refinery has ever seen a run of diesel exports like this,” the source told Reuters.
Diesel spot prices have steadily increased since the beginning of May.
New York Harbor diesel spot prices climbed from $1.28 per gallon at the start of the month to $1.441 per gallon as of May 16.
U.S. Gulf Coast diesel spot prices were at $1.396 per gallon as of May 16, up from $1.235 per gallon at the start of the month.
Los Angeles diesel spot prices stood at $1.441 per gallon as of May 16, up from $1.263 per gallon at the start of May.
Refiners began boosting gasoline production earlier this year as diesel margins tightened, putting a dent in distillate supply growth.
The approaching summer driving season is also expected to boost gasoline inventories and further slow distillate supply growth.
U.S. finished motor gasoline production climbed to 1.516 million barrels per day in early April and eased slightly before ending the week of May 13 at 1.511 million bpd.
Meanwhile, U.S. distillate fuel oil production fell from 4.746 million bpd during the first week of May to a low of 4.572 million bpd for the week of May 6.
Distillate fuel production climbed back up to 4.738 million bpd as of the week ending on May 13.
U.S. distillate fuel oil exports have held steady at 949,000 barrels per day for the past four weeks.
Investment firm Scotia Howard Weil noted earlier this month that “distillate inventories have been in a downward trend as of late” despite soft demand.
The investment firm added that the distillate inventory draw “could serve as a potential upside surprise once drilling activity resumes.”