Ameer Randolph
Diesel fuel is a crucial resource for various industries, but are we running out of it? In recent times, there have been concerns about a potential diesel fuel shortage, especially in the United States. While it is true that diesel inventories are lower than they have been in previous years, experts assert that the U.S. is not on the brink of running out of diesel fuel. The 25-day supply figure that sparked fears of an impending shortage is a measurement of supply and demand, and it does not account for the dynamic nature of the fuel supply chain, which includes ongoing production and imports.
| Characteristics | Values |
|---|---|
| Is the US running out of diesel fuel? | No, the US is not running out of diesel fuel. |
| Diesel fuel inventory in the US | The US has a 25-day supply of diesel fuel, which is lower than the usual 33-40 days. |
| Reasons for low inventory | Russia's war on Ukraine, refinery shutdowns due to COVID-19, competition with Europe for energy, and a fire explosion at a Philadelphia refinery in 2019. |
| Impact of low inventory | Higher diesel prices, which could contribute to higher costs for consumers and inflation. |
| Possibility of regional shortages | Some cities might run dry on diesel for a few days, but suppliers will rally to fill in gaps in supply. |
| Future outlook | The market is adjusting to maintain supply, but there could be a tight market if there is a cold winter. |
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What You'll Learn
Low diesel stockpiles
While the US is not running out of diesel fuel, low diesel stockpiles have caused worry among citizens. As of October 28, 2022, the US had 25.8 days' worth of diesel in its stores, according to the EIA. This is a lower supply than in previous weeks and years. The usual supply is around 33–40 days' worth of diesel. The low supply has been attributed to several factors, including seasonal maintenance, the lingering effects of the COVID-19 pandemic, refinery shutdowns, and the war in Ukraine.
The low stockpiles have resulted in higher diesel prices, with prices averaging more than $1.50 higher than gasoline at the pump. The Northeast region of the US has been particularly affected by the low stockpiles, with stocks being the lowest in the country and diesel facing competition from fuel oil.
While there is no immediate risk of a diesel shortage, the low inventory levels leave the market exposed to sudden increases in demand or decreases in supply. For example, a major refinery shutdown or a particularly cold winter could further tighten the diesel market.
The low diesel stockpiles have also impacted logistics and delivery services, with increased fuel costs being passed down to shoppers, contributing to higher prices for goods and exacerbating inflation.
Despite the low stockpiles, the US diesel market is adjusting to ensure a steady supply of fuel. Refineries are working to increase production, and suppliers are rallying to fill in any gaps in supply. Governments have also taken action, with several states issuing emergency waivers of hours-of-service rules for truckers transporting fuel.
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High diesel prices
Diesel prices have been surging to record highs, causing concern for businesses and consumers. In May 2022, the national average cost for a gallon of diesel fuel in the United States hit a new record of $5.32, a significant increase from the previous year's average of $3.12. The state of Washington experienced even higher prices, with diesel costing $5.57 per gallon. These high prices have impacted nearly every aspect of the supply chain, affecting trucks, trains, barges, and planes that rely on diesel fuel for operation.
Several factors have contributed to the surge in diesel prices. Firstly, the industry faced a supply shortage due to a drop in global refining capacity caused by the COVID-19 pandemic. Sanctions on Russian fuel exports to Europe further exacerbated the situation, driving up prices as the global market scrambled for the limited supply. Additionally, the war in Ukraine, refinery shutdowns due to COVID-19 and natural disasters, and reduced refining capacity have all contributed to higher diesel prices.
The high diesel prices have had a significant impact on businesses. For example, companies with large fleets of trucks have had to pay double or even triple the amount to fill up their vehicles compared to the previous year. This has resulted in incremental costs of millions of dollars for companies like Target and Walmart, affecting their overall business operations. The airline industry has also been impacted, with jet fuel prices surging, leading to higher costs for airlines.
The rising cost of diesel has also contributed to broader economic challenges. As diesel is considered the "economic fuel," its increased cost affects anything transported by trucks, trains, or ships. This, in turn, contributes to the decades-high inflation numbers, as prices for goods and services continue to rise. According to Yardeni Research, households are now spending $5,000 per year on gasoline, a significant increase from $2,800 the previous year.
While the United States faced a low diesel stockpile situation, it is important to note that this does not indicate an imminent shortage. However, the low stockpiles have contributed to higher diesel prices, and experts predict that diesel prices will continue to rise throughout 2022.
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The impact of the Russia-Ukraine conflict
The Russia-Ukraine conflict has had a significant impact on the availability and price of diesel fuel globally. Prior to the war, Russia supplied more than half of the EU's diesel imports, and around 10% of its total demand. In response to the conflict, the EU imposed sanctions on Russia, including a ban on imports of Russian petroleum products, such as diesel, from February 2023 onwards. This led to fears of a diesel supply crunch in the EU, particularly during the winter months when demand for heating oil is high. However, these fears have not materialized, as European countries built up their diesel inventories and imported alternative sources of diesel.
The conflict has also disrupted supply chains and caused fuel shortages in Ukraine, affecting its agricultural sector. Ukrainian farmers rely on diesel fuel for their tractors and trucks, and the Russian blockade of Black Sea ports has made it difficult for them to access diesel supplies. This has led to concerns about global food shortages and rising food prices, as Ukraine is a major exporter of agricultural commodities.
The impact of the conflict on diesel supplies and prices has been felt beyond Europe as well. In the UK, for example, the invasion of Ukraine triggered a rise in oil prices, leading to higher fuel costs for motorists. There were also reports of panic buying and local shortages at some service stations. However, the UK is a significant producer of crude oil and petroleum products, and it meets its diesel demand through a combination of domestic production and imports from a diverse range of suppliers beyond Russia.
The conflict has also had economic consequences for Russia itself. Ukrainian drone strikes on Russian oil refineries have reduced Moscow's fuel supplies and sent local prices soaring. This has prompted Russia to impose a ban on petrol and diesel exports to prioritize its military and civilian needs. However, this has also created a black market for fuel, with middlemen selling cheap Russian gasoline abroad.
Overall, the Russia-Ukraine conflict has disrupted global diesel fuel markets, leading to supply chain issues, price increases, and local shortages in some regions. The impact has been felt by consumers, industries, and agricultural sectors, contributing to rising inflation and concerns about food security.
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Refinery shutdowns
The impact of these shutdowns was felt across various sectors. Trucking companies, municipalities, and emergency services that rely heavily on diesel fuel were particularly affected. Cincinnati officials implemented measures to conserve diesel fuel, prioritizing essential services such as the fire department, trash removal, and snow removal. The city warned department heads to prepare for potential shortages, and trucking companies reported fuel rationing at truck stops in Arizona and New Mexico.
The refinery shutdowns also had economic implications. With a reduced supply of diesel, prices were expected to increase, impacting logistics and delivery services, which, in turn, could lead to higher costs for consumers. The shutdowns threatened to disrupt Christmas deliveries and affect small businesses, local governments, and schools that depend on diesel fuel.
While the situation was expected to improve within 30 days, it highlighted the vulnerability of the fuel supply chain and the potential consequences of refinery shutdowns. Similar concerns were raised about the potential impact of Philadelphia refinery shutdowns on the Northeast region's fuel supply, including diesel, and the resulting economic and employment consequences.
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The role of imports in maintaining supply
While the US has been facing a diesel fuel supply crunch, it is not running out of diesel fuel. The low inventory levels are due to a combination of factors, including seasonal maintenance, the lingering effects of the COVID-19 pandemic, refinery shutdowns, and the war in Ukraine.
The role of imports in maintaining the supply of diesel fuel is crucial. Imports, along with refinery production, play a significant role in replenishing the diesel fuel supply in the US. According to EIA Administrator Joe DeCarolis, the distillate fuels in storage are not the sole source of diesel for the country. He assured that there was no risk of trucks and trains grinding to a halt due to a lack of diesel.
The dynamic nature of the fuel supply chain allows suppliers to act swiftly and fill in any gaps in supply. Mansfield Energy's Alan Apthorp acknowledged the possibility of short-term regional shortages but emphasized that suppliers would rally to meet the demand, albeit at higher costs. This was evident in the waivers issued by the governors of South Dakota, Iowa, and Nebraska, allowing for the expedited transport of fuel.
The war in Ukraine has also impacted the energy landscape, with Western countries weaning themselves off Russian gas. This has resulted in increased competition for energy sources, affecting diesel fuel supplies.
While imports are essential in maintaining diesel fuel supplies, the current situation has resulted in higher diesel prices. The low distillate stockpiles and higher demand have contributed to this price surge. Tom Kloza of the Oil Price Information Service noted that the profit motive would incentivize refineries to get back up and running, potentially improving the situation.
In conclusion, imports play a vital role in ensuring the availability of diesel fuel in the US, especially during times of low inventory levels. The dynamic nature of the fuel supply chain and the ability to mobilize resources help maintain a steady supply for consumers, even if it comes at a higher cost.
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Frequently asked questions
No, the US is not running out of diesel fuel. While the country's diesel supply is the lowest it's been since 2008, the supply is continually replenished by refineries and imports.
Diesel prices are high due to low stockpiles and higher demand. Low stockpiles are caused by factors such as seasonal maintenance, the lingering effects of the COVID-19 pandemic, and competition with Europe for energy.
It is difficult to predict if there will be a diesel fuel shortage in the future. However, diesel inventory levels are currently lower than average, and there could be further tightening in the coming months.
The US gets its diesel fuel from a combination of domestic production and imports. The US is one of the largest producers of diesel fuel in the world, but it also imports diesel fuel from other countries.
Alternatives to diesel fuel include electricity, natural gas, propane, and renewable sources such as biodiesel and hydrogen. In some cases, diesel engines can be converted to run on alternative fuels.
