Mercedes Mullins
Diesel fuel supplies in the U.S. have been at record low levels since Spring 2022. This has been attributed to several factors, including increased demand from Europe due to the war in Ukraine, refinery outages, and a Mississippi River drought that has forced barge freight onto trucks. While the low stockpiles don't indicate an imminent outage, they have contributed to higher diesel prices, particularly in the Northeast. The Biden administration is considering limiting fuel exports to alleviate the situation. Experts assure that the U.S. won't run out of diesel soon, as the calculated number of days of supply doesn't account for ongoing diesel production.
| Characteristics | Values |
|---|---|
| Is there a diesel fuel shortage? | No, but there is a low stockpile. |
| Will there be a shortage in 2023? | No, but there will be higher prices. |
| What is causing the low stockpile? | Seasonal maintenance, lingering effects of the COVID-19 pandemic, and competition with Europe for energy. |
| What is the impact of the low stockpile? | Higher diesel prices, especially in the Northeast. |
| What is the current supply in the US? | 25 days' worth of diesel fuel as of October 28, 2022. |
| What is the normal supply? | Around 30 days' worth. |
| What is the impact of higher diesel prices? | Increased stress on operators with poor MPG, higher operating costs, and a potential tipping point in trucking capacity. |
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What You'll Learn
The US won't run out of diesel fuel
While there has been an ongoing spike in diesel prices, the US will not run out of diesel fuel. Low stockpiles do not mean that the country will run out of diesel, but they do mean higher prices. This is especially true in the Northeast, where stocks are the lowest, and diesel faces competition from fuel oil for home heating in the winter.
The US Energy Information Administration (EIA) data for the week ending October 21, 2022, showed that the US had 25.9 days' worth of diesel fuel supply. This calculation is based on taking the US inventory and dividing it by daily demand. However, this does not mean that outages are imminent. While refineries typically perform maintenance during the fall, they can shift some gasoline production to diesel production.
The US government maintains a Strategic Petroleum Reserve of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. This reserve can be utilized to prevent any potential diesel fuel shortages.
While there may be concerns about a diesel fuel shortage, the US has the reserves and flexibility in refinery production to ensure that it will not run out of diesel fuel.
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Diesel prices are at a record high
Secondly, the conflict between Russia and Ukraine has disrupted imports, as the U.S. previously imported a significant amount of petroleum and refinery inputs from Russia. The ongoing conflict has also contributed to increased oil prices globally, impacting consumer gas prices.
Additionally, the base material for diesel fuel, heavy crude oil, has seen reduced production by Saudi Arabia and Russia. This has resulted in refineries processing more volume with less yield, impacting the supply of diesel fuel.
The spike in diesel prices is also influenced by increased demand from sectors like trucking, railroads, manufacturing, and construction. The Mississippi River drought, for instance, has led to more freight being transported by truck, contributing to higher diesel consumption.
Moreover, the anticipation of a soft landing in the U.S. economy and an improving economic outlook have further accelerated the rise in diesel prices. Traders expect that a quick recovery without a recession could lead to a rapid re-emergence of shortages.
The combination of these factors has resulted in diesel prices reaching record highs, impacting various industries and consumers alike.
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Low stockpiles and high demand
The United States is currently facing low stockpiles of diesel fuel, with supplies at record low levels since Spring 2022. This has resulted from a combination of factors, including high demand, reduced refining capacity, and supply disruptions.
Firstly, the U.S. has witnessed a surge in demand for diesel fuel. This is partly attributed to the Mississippi River drought, which has led to barge freight being shifted to trucks, as well as the potential for a rail strike. Additionally, the upcoming winter season will increase the demand for heating oil, further straining diesel resources.
Secondly, there has been a decrease in refining capacity globally, with a 3 million bbl/day reduction since 2018, including a 1 million bbl/day decline in the U.S. alone. This has been exacerbated by maintenance requirements, as refineries conduct overdue upkeep following the COVID-19 pandemic's low demand period.
Moreover, supply disruptions have played a significant role in the low stockpiles. The Russian invasion of Ukraine has impacted global energy supplies and imports, with Europe relying on the U.S. to supplement its diesel and heating oil shortfall. Additionally, refinery outages and the need to shift away from Russian energy sources have further tightened supply.
The low stockpiles of diesel fuel have resulted in higher prices, with diesel prices across the U.S. climbing in recent weeks. This has particularly impacted operators with poor miles per gallon and high deadhead mileage, who struggle to factor in the increased fuel costs.
While the low stockpiles have sparked fears of an imminent diesel shortage, experts assert that the U.S. will not run out of diesel fuel. The 25-day supply figure, as of October 2022, does not account for ongoing diesel production, and refiners are working to meet the demand. However, the low stockpiles and high demand continue to impact prices and strain industries reliant on diesel fuel.
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The impact of the Russian invasion of Ukraine
While there is no diesel fuel shortage, low stockpiles have resulted in higher diesel prices. This is especially true in the Northeast, where stocks are the lowest, and diesel competes with fuel oil for home heating in the winter. The low stockpiles can be attributed to a variety of factors, including refinery maintenance and increased demand due to the Mississippi River drought and the upcoming winter season.
The Russian invasion of Ukraine has also impacted diesel fuel supplies and prices. Prior to the invasion, the U.S. imported nearly 700,000 barrels per day of petroleum and petroleum products from Russia. After the invasion, the U.S. and other countries stopped purchasing energy exports from Russia, leading to a further increase in diesel prices. The disruption in supplies from Russia has put pressure on the energy system, and the risk of further supply disruptions has not been fully priced in, suggesting that prices may continue to rise.
The Biden administration's ban on Russian oil imports to the U.S. has also contributed to the increase in oil prices, which have skyrocketed to over $110 per barrel. These higher oil prices have fueled inflation, impacting the cost of goods and services. Some governments may introduce measures to protect consumers from the increase in energy prices, such as decreasing or suspending federal taxes on gasoline and diesel.
The war in Ukraine has had a significant impact on motor fuel prices in Europe. Wholesale prices in May 2022 were much higher than in 2018/2019, with the largest price increase reported for TME (tallow methyl ester), which saw a 133% increase compared to 2018/2019. The spike in diesel prices has put pressure on trucking and motor carrier operations, with many small operations facing challenges due to rising costs and older, less efficient trucks.
Overall, the low stockpiles of diesel fuel and the impact of the Russian invasion of Ukraine have resulted in higher diesel prices and put strain on industries reliant on diesel fuel, particularly trucking and motor carrier operations.
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Refinery outages and maintenance
In October 2022, the United States faced a situation where diesel fuel stockpiles were relatively low. While this did not indicate an imminent outage, it highlighted the challenge refiners faced in keeping up with demand. The available stockpiles were calculated to provide approximately 25 days' worth of supply, considering the country's consumption rate.
The low stockpiles resulted from various factors, including increased demand for diesel fuel due to the Mississippi River drought, which shifted barge freight to trucks, and the upcoming winter season, where heating oil demand rises. Additionally, refineries faced a mismatch in the type of crude available, with an abundance of super-light, gasoline-rich crude, leading to lower diesel yields.
To address the low stockpiles, refineries possess some flexibility in shifting gasoline production to diesel. However, this option has limitations in terms of the volume that can be reallocated. Moreover, geopolitical factors, such as the conflict between Russia and Ukraine, can also impact diesel fuel supplies and prices.
While refinery maintenance and outages can contribute to fluctuations in diesel fuel availability, it is important to note that complete outages are rare. Even in times of geopolitical instability, diesel fuel production has generally continued, and stockpiles are managed to prevent critical shortages.
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Frequently asked questions
Yes, U.S. diesel supplies are at record low levels and have been since Spring 2022.
There are several factors contributing to the low diesel fuel supply:
- A post-COVID demand surge
- Reduced refining capacity across the globe
- Lack of CAPEX/maintenance spending during the COVID-no demand period
- The U.S. energy policy shift away from carbon-related assets
- The Russian invasion of Ukraine
- Refinery outages
- Strong demand from Europe
No, the U.S. will not run out of diesel fuel. The 25-day supply figure doesn't account for ongoing diesel production.
Diesel prices are expected to continue surging.
The low supply and high prices of diesel fuel are expected to be the tipping point in a trucking capacity rebalancing.
