Why Are Refiners Continuing To Produce So Much Distillate Fuel? -- August 29, 2020

Among the many things that don't make sense this year, one of the most glaring: refiners continue to add more distillate fuel to US inventories. 

Someone well versed in the energy sector wrote me, saying that it made no sense; he couldn't come up with any reason why refiners would do this.

I suggested that an analogy may be natural gas production in oil plays. For those in the Bakken, natural gas production is a necessary hassle / expense. One can't produce oil without producing natural gas, even in an oil play, and it gets worse as the oil field matures. 

I suggested the same might be true for refiners. A refinery is a complex operation made up many parts, perhaps not unlike a Rube Goldberg machine. Perhaps one can't simply turn off the one part of the refinery that makes distillate fuel if one wants to keep the entire operation running.

I don't know. 

The reader was hoping that someone with a background in refinery operations might weigh in, weighing in on whether there is some validity to that possibility. 

Links of interest:

• US crude, distillate stockpiles rise unexpectedly, EIA -- Reuters, July 22, 2020;
• Changing demand for petroleum products has led to operational changes at US refineries -- EIA, August 28, 2020;

 From last month, July 22, 2020, Reuters:

U.S. crude oil and distillate inventories rose unexpectedly and fuel demand slipped last week, the Energy Information Administration said on Wednesday, as a sharp outbreak in coronavirus cases hit U.S. consumption.

U.S. crude production ticked higher and refined products supplied, a proxy for fuel demand, declined. The market has recovered from the doldrums of April, when U.S. prices briefly dropped to more than negative-$40 a barrel, as producers trimmed supply due to a slump in demand amid lockdowns to control the pandemic.

Crude inventories rose 4.9 million barrels in the week to July 17 to 536.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.1 million-barrel drop. Production rose to 11.1 million barrels per day (bpd), up 100,000 bpd.

Distillate stockpiles, which include diesel and heating oil, rose 1.1 million barrels to 177.9 million barrels, their highest since December 1982, data showed. Analysts had expected a 618,000-barrel drop.