Inventories of distillate fuel, which includes diesel and home heating oil, were 117.7 million barrels at the end of June, the lowest end-of-June level since 2004, according to the U.S. Energy Information Administration. The inventories have been lower than the previous five-year average throughout 2018. The low levels have been a result of a rise in distillate consumption that have not been offset by an increase in domestic refinery production or a decline in net exports of distillate.
U.S. consumption of distillate fuel rose 5%, or by 190,000 barrels per day, to 4.12 million barrels per day in the first half of 2018, compared to the same period in 2017. The rise was a result of increased activity in the trucking industry, which uses the most diesel fuel. Trucking demand is closely related to economic growth and industrial activity, and both have been higher in the first half of 2018, compared to the same period in 2017.
Also, cold January temperatures in the Northeast led to increased use of heating oil, according to the EIA. In January, temperatures in the Middle Atlantic and New England were 25% and 21% colder, respectively, than in January 2017. Those regions have high shares of homes that use heating oil.
In the first half of 2018, refinery production of distillate fuel rose 1%, or by 30,000 barrels per day, to 5 million barrels per day, from the same period in 2017. Over the same period, net exports of distillate fuel fell 7% or by 80,000 barrels per day to 1.1 million barrels per day. Net exports declined as first-quarter imports rose to meet heating oil demand.
Over the past year, the rise in domestic distillate consumption and the decrease in supply have contributed to diesel prices rising more than the price of crude oil, which is the main input cost in distillate production. In the first half of 2018, the spot price of Brent crude oil rose $19 per barrel, or 46 cents a gallon, to $71 per barrel, from the same period in 2017. Between January and June, the retail price of diesel rose 55 cents a gallon to an average of $3.11 per gallon.