Commercial crude stocks fell last week across most of the country, as a disastrous storage max-out appears less and less probable. Still, demand for finished products softened as gasoline demand fell while inventories rose. Diesel inventories continued their sharp ascent even while distillate demand is close to 5-year averages. As we noted last week, a growing glut of diesel inventories could weigh on refinery operations and lead to diverging outcomes in gasoline and distillate markets.

While it is still too soon to declare victory in the battle against storage max-out, there may be cause for relative optimism as the public health crisis appears, at least for now, to be abating. While a second wave of COVID-19 infections remains a critical risk, a combination of physical distancing, warmer temperatures, hygiene, mask-wearing, and progress on vaccines and therapeutics appear to be enabling a return to many pre-crisis activities. We are increasingly confident that a combination of production cuts and (more importantly) recovering demand has halted a storage max-out. Even so, crude and gasoline demand will remain constrained through at least the rest of 2020.