Nearby diesel futures spent much of November on the defensive and it’s difficult to chart a course whereby December will be all that much different. The fundamental picture for diesel is decidedly bearish as Atlantic Basin distillate stocks are in serious surplus. US inventory increased by 3.7 million barrels in November to stand at 144.4 million barrels or a whopping 28 million over last year and 25 million over the four year average. European distillates are probably in much worse shape as inventories in ARA storage are approaching record levels. Stocks in Europe will probably build further as imports are actually set to increase in December. Storage for diesel is said to be tight with floating storage now a very viable option. Temperatures have been above normal in Europe which has not helped any type of stock draw. In the heating oil usage intensive Northeastern US, many locations experienced record warmth during November as a strong El Nino event begins to take sway. To make matters worse December’s forecasted temperatures look to be above or much above normal. The NOAA is looking for above normal temperatures through March. Without the expected seasonal pick up in demand ,distillate must be balanced through lower refinery output. With overall domestic refinery margins still relatively good, we do not see refiners cutting back in December. The results should be for continued distillate stock builds accompanied by successively lower lows for price. We would not be surprised to see January futures trade as low as 1.25 to 1.27 during the upcoming month.
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