Middle distillates remain the one ray of hope for U.S. oil refiners still struggling to clear a glut of gasoline caused by over-production earlier in the year.
Stocks of distillate fuel oil are higher than normal but have been trending down for the last 15 weeks according to the U.S. Energy Information Administration (tmsnrt.rs/2aP76CJ)
Distillate stocks are currently around 152 million barrels, almost 8 million barrels higher than at the same point last year and more than 20 million barrels over the 10-year median.
However, stockpiles have fallen from a peak of 163 million barrels at the start of April, when they were a massive 35 million barrels over the same point in 2015 and 40 million barrels over the 10-year average.
Unlike gasoline stocks, which have shown an unusual counter-seasonal build up over the first part of the summer, distillate stocks have exhibited an unusual counter-seasonal drawdown.
Hedge funds have noticed the divergent trends and become much more bullish about the outlook for distillate prices than for gasoline.
By July 19, hedge funds had amassed a net long position in U.S. heating oil futures and options equivalent to 17 million barrels