CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

COLUMN – U.S. diesel shortage shows economy hitting capacity limit: Kemp

By Reuters_News

14:30, 4 August 2022

A file photo of the Valero St. Charles oil refinery in Norco, Louisiana August 15, 2008.
A file photo of the Valero St. Charles oil refinery in Norco, Louisiana August 15, 2008.

By John Kemp

- U.S. distillate fuel oil inventories are depleting to critically low levels; either an imminent recession reduces consumption or prices are likely to surge higher.

Distillate fuel oil is the lifeblood of industry and the worsening shortage shows the economy is hitting hard capacity constraints in the short term.

Stocks of diesel, heating oil and other distillate fuel oils fell by more than 2 million barrels to 109 million barrels last week, according to data from the U.S. Energy Information Administration (EIA).

Distillate inventories have declined in 66 of the last 109 weeks by a total of 65 million barrels since the start of July 2020 (“Weekly petroleum status report”, EIA, Aug. 3).

The drawdown has more than offset the 45 million barrels accumulated in the second quarter of 2020 when consumption was hit by the first wave of the coronavirus and widespread lockdowns.

Stocks are now in only the 8th percentile for all weeks since 2000, down from the 68th percentile at this point last year and a record at the end of July 2020.

Inventories are more than 21 million barrels below the corresponding point in 2008, when prices were just coming off a record high, and at the lowest level for the time of year since 1996.

Export demand 

Distillate inventories usually increase during the third quarter as refineries boost crude processing to make more gasoline for the summer driving season.

But this year, inventories have failed to rise, and have actually fallen by 2-3 million barrels since the end of June, the largest seasonal drawdown since at least 1990.

Internal demand, measured by the volume of distillate supplied to the domestic market, is running 100,000-200,000 barrels per day below the corresponding point in 2021.

But external demand, measured by net exports, is running at very high levels as refiners export to Latin America, Europe and Asia in response to strong consumption and to compensate for the loss of distillate exports from Russia.

Net exports of distillate fuel oil averaged 1.4 million barrels per day in the most recent five weeks, one of the fastest rates in the last five years.

Recession ahead

Rebuilding distillate inventories will require a reduction in internal demand via a domestic business cycle downturn and a reduction in external demand via a global recession and/or easing of sanctions on Russia’s exports.

Interest rate increases by the U.S. central bank are already spreading around the world and are likely to induce the required slowdown in industrial activity at home and abroad.

In the United Kingdom, the governor of the Bank of England has forecast the economy will enter a recession before the end of year.

The other major European economies are likely to enter a recession on a similar timescale as surging inflation and energy prices dampen household and business spending.

China is struggling with its own worsening cyclical slowdown created by repeated lockdowns to control the spread of coronavirus.

Recessionary forces will also propagate through the middle-income countries that are major industrial suppliers to North America, Europe and China – including Brazil, Mexico, Turkey, Thailand, Indonesia and Vietnam.


16,018.90 Price
+0.050% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 1.8


2,044.61 Price
+0.170% 1D Chg, %
Long position overnight fee -0.0196%
Short position overnight fee 0.0114%
Overnight fee time 22:00 (UTC)
Spread 0.30


37,989.35 Price
-0.180% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00


0.61 Price
-0.650% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.01168



U.S. interest rate traders now anticipate a recession is virtually certain, with the Treasury yield curve between two-year and ten-year maturities at its most inverted since before the dotcom crash in 2000.

Distillate prices are incorporating a high probability that recession will dampen consumption and rebuild inventories over the course of 2023.

The European gas oil futures calendar spread between December 2022 and December 2023 has softened to a backwardation of $15 per barrel from more than $32 in the middle of June.

Macroeconomists sometimes employ a KLEMS model to identify the contributions of capital (K), labour (L), energy (E), materials (M) and services (S) as well as multifactor productivity to economic growth.

Much of the recent discussion about growth and inflation has focused on the labour component (L) where economists and policymakers are divided on whether there is still unused spare capacity.

But the U.S. economy has already hit a binding constraint on energy (E) which is showing up in the shortage of distillate (and to some extent gas and electricity), rising inflation, and will force a slowdown in growth in the short term.


Related columns:

- Low U.S. oil inventories imply deeper economic slowdown will be needed (Reuters, July 28)

- Oil and interest rate futures point to cyclical downturn before end of 2022 (Reuters, July 22)

- Global diesel shortages herald imminent economic slowdown (Reuters, May 19)

- Diesel is the U.S. economy’s inflation canary (Reuters, Feb. 9)


John Kemp is a Reuters market analyst. The views expressed are his own


Editing by Kirsten Donovan

Rate this article

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 570.000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading