US total distillate inventories forecast to end 2025 and 2026 at multiyear lows

In the weeks since the publication of this forecast, US distillate in-ventories have increased substantially, but they remain relatively low. Distillate fuel oil includes both diesel fuel used in vehicles and home heating oil. Lower distillate inventories elevate the risk of higher prices and price volatility from supply disruptions, especially during periods of high demand like the autumn harvest and winter heating season.

The EIA uses total distillate to look at the combination of distillate fuel oil and biomass-based distillate fuel oil, which can be used in place of distillate fuel oil and includes both renewable diesel and biodiesel. A significant factor in the forecast low inventories is the sharp inventory drawdown in the first half of 2025 (1H25). US total distillate invento-ries decreased by 17% (about 22 million bbl) during this period, more than the average decrease of 10% (14 million bbl) over the same peri-od in the previous four years.

One major reason for the large inventory draw in 1H25 was re-duced supply of renewable diesel and biodiesel because of lower pro-duction and lower net imports of those fuels. Less renewable diesel and biodiesel supply resulted in more demand for petroleum-based dis-tillate to fill the gap. As renewable diesel and biodiesel consumption decreased by 124 000 bpd, or 35%, in 1H25 compared with 1H24, pe-troleum distillate fuel oil consumption increased by about 170 000 bpd, or 5%.

The EIA expects the 1H25 drop in biofuels consumption to be a short-term departure from the longer-term trend of biofuels increasing as a share of distillate consumption. It forecasts renewable diesel and biodiesel consumption to partially recover in 2H25 to meet existing and future production mandates under the Renewable Fuel Stand-ard (RFS). The EIA expects that an increase in renewable diesel and biodiesel production will partially offset the increase in total distillate fuel oil consumption that it forecast in 2026, resulting in essentially flat distil-late fuel oil inventories between December 2025 and December 2026. Another reason for the large inventory draw in 1H25 was higher-than-average distillate exports, supported by strong international demand. Since 2023, major European hubs in the Netherlands and the UK have been importing significantly more distillate from the US as a replace-ment for Russian products.

In 1H25, US distillate exports averaged 1.2 million bpd, 7% more than the previous five-year average. The EIA expects strong interna-tional distillate demand to continue to place downward pressure on US inventories through 2026.

US refinery closures also play a role in the forecast low distillate inventories through 2026. The LyondellBasell Houston refinery shut down in early 2025; another two refineries in California with a combined 284 000 bpd in refining capacity plan to close over the next two years. The loss of refining capacity will likely reduce US production of petrole-um products, including distillate fuel oil, reducing the output available to restock distillate inventories. The EIA expects increased renewable die-sel production in 2026 will partially offset some of the decline in distil-late fuel oil production.

Read the article online at: https://www.hydrocarbonengineering.com/refining/26092025/us-total-distillate-inventories-forecast-to-end-2025-and-2026-at-multiyear-lows/