Ameer Randolph
Diesel fuel is a fossil fuel that powers industry and transport. While there are concerns about the world running out of diesel, it is important to note that the current situation is primarily a supply issue. The world's oil refiners are struggling to keep up with the demand, leading to low stockpiles and higher prices. This does not necessarily indicate an imminent outage, but it does highlight the need for better supply management and the exploration of alternative fuel sources.
| Characteristics | Values |
|---|---|
| Is there a diesel fuel shortage? | No |
| Reason for the shortage | Low stockpiles |
| Impact of low stockpiles | Higher diesel prices |
| Impact of low stockpiles in the Northeast US | Higher diesel prices due to competition from fuel oil |
| Energy Information Administration data for the week ending Oct 21, 2022 | 25.9 days' worth of diesel fuel supply in the US |
| Reason for low stockpiles | Refiners are unable to keep up with demand |
| Reason for low stockpiles in Europe | Widespread unplanned outages |
| Global refining fleet status | Lackluster production for months |
| Oil prices | Just below $95 a barrel in London |
| US diesel prices | Above $140 |
| Europe diesel prices | Soared 60% since summer |
| Reason for low production by Saudi Arabia and Russia | Prolonged curbs on production of crude diesel |
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What You'll Learn
Low stockpiles, high prices
While there is no risk of a diesel fuel shortage, low stockpiles have led to higher prices. The situation is challenging for a global refining fleet that has been struggling with poor production for months. Oil refineries are failing to produce enough diesel, which is causing a new inflationary front and depriving economies of a fuel that powers industry and transport.
The low stockpiles are a result of a number of factors. Firstly, refineries typically perform maintenance during the fall, which impacts their output. Secondly, there has been a decrease in the production of crude oil that is richer in diesel. Saudi Arabia and Russia, leaders of the OPEC+ alliance, have announced that they will be prolonging production curbs through the end of the year, a period in which demand for diesel usually increases. Finally, European refineries were unable to build up supplies over the summer due to widespread unplanned outages, which has left inventories tight ahead of winter.
The low stockpiles have resulted in higher prices for diesel fuel, particularly in the Northeast of the United States, where stocks are the lowest and diesel faces competition from fuel oil for home heating in the winter. The EIA has forecast that average household expenditures for home heating fuels will increase this winter due to higher fuel costs and increased energy consumption. Tom Kloza of the Oil Price Information Service has stated that there is a "tremendous profit motive" to get refineries back up and running, which could improve the situation.
While the low stockpiles of diesel fuel are not indicative of an imminent outage, they do highlight the challenges faced by the global refining industry in keeping up with demand.
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Refineries unable to keep up
The world is facing a challenging situation with regards to diesel fuel supplies. While there are no imminent fears of a global diesel shortage, there are concerns about whether refineries can keep up with demand.
The global refining fleet has been struggling with lacklustre production for months, and there is a supply issue at hand. Oil refiners are failing to produce enough diesel, which is causing economic issues for industries and transport sectors that rely on this fuel source. This is particularly true in the US, where diesel prices have jumped to record highs for this time of year, and Europe, where prices have soared by 60% since summer.
The situation is not expected to improve soon, as Saudi Arabia and Russia, leaders in the OPEC+ alliance, have decided to curb production of crude oil that is richer in diesel. This decision will be in effect until the end of the year, a period that typically sees an increase in diesel demand.
European refineries were unable to build up their diesel supplies over the summer due to unplanned outages, which has left inventories low ahead of winter. This has resulted in low stockpiles, which do not indicate an imminent outage but do result in higher prices for consumers.
The low stockpiles are especially noticeable in the US Northeast, where stocks are at their lowest and diesel faces competition from fuel oil for home heating during the winter. While there are no fears of a diesel outage, these low stockpiles will result in higher diesel prices for consumers.
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Fossil fuels are limited
Fossil fuels are non-renewable resources, meaning they have a limited supply and are not continuously replenished or are replenished very slowly. Fossil fuels, such as coal, oil, and natural gas, are formed from the remains of prehistoric organisms, including animals and plants, through geological processes that take millions of years. While fossil fuels have been essential for human survival and modern civilization, they are also the primary source of energy consumption and electricity generation worldwide.
The limited nature of fossil fuels becomes evident when considering the significant time required for their formation. The conversion of organic materials into high-carbon fossil fuels occurs over millions of years due to the heat and pressure from the Earth's crust. This process results in the creation of valuable energy sources such as oil, natural gas, and coal, which are non-renewable.
The distribution of fossil fuels is uneven worldwide, with deposits depending on the region's climate, the organisms that previously existed there, and subsequent geological changes. Countries with substantial fossil fuel reserves often have economies heavily reliant on their extraction and export. However, some countries, like the United States, consume more oil than they produce, necessitating imports from other nations.
The large-scale burning of fossil fuels has detrimental environmental consequences, contributing significantly to greenhouse gas emissions and climate change. In 2022, over 70% of human-induced greenhouse gas emissions were attributed to carbon dioxide released from burning fossil fuels. Efforts to mitigate these negative impacts have led to a growing movement toward alternative energy sources, such as renewable energy, and stricter environmental regulations to limit emissions.
The finite nature of fossil fuels and their environmental impact have spurred discussions about a gradual global reduction in their use and production, known as the fossil fuel phase-out. This transition aims to reduce air pollution, mitigate climate change, and enhance energy independence by shifting towards cleaner and safer energy sources.
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Oil refiners can't make enough
Diesel fuel is a fossil fuel that we have been using for decades. Fossil fuels are a limited resource, and we are consuming them at an alarming rate. While we are not running out of diesel fuel, there are currently low stockpiles, which result in higher prices.
Oil refiners cannot make enough diesel fuel due to several reasons. Firstly, the process of refining crude oil to produce diesel fuel is complex and requires specialized refineries. Refineries are expensive to build and operate, and the number of refineries available may not be sufficient to meet the demand. Additionally, the quality of crude oil plays a role in determining the ratio of diesel fuel that can be produced.
Another factor is the maintenance and shutdown of refineries. Fall is typically a time when refineries undergo maintenance, which can impact production. The COVID-19 pandemic also led to the permanent closure or conversion of several refineries worldwide, reducing the overall refining capacity. The refining sector is in a state of rebalancing, with new refineries and expansions in the works, but these changes will take time to implement.
Furthermore, there are challenges in transporting diesel fuel to certain regions, such as New England in the U.S., which relies on Jones Act vessels for delivery. High seasonal demands and transportation constraints could lead to temporary disruptions in supply.
To address these challenges, refiners are adapting operations by running at full capacity and maximizing distillate production. Government interventions, such as granting waivers to increase the number of vessels for transportation, can also help alleviate the situation.
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Consumption growth is slow
While the world is facing a challenging situation with a global refining fleet that has seen lacklustre production for months, the consumption growth of diesel has been slow. This is in contrast to other fuels, such as gasoline, jet fuel and kerosene, which have seen a much higher increase in consumption. For example, the IEA anticipated consumption of diesel to grow by about 100,000 barrels a day in 2022, whereas the consumption of gasoline was expected to increase by almost 500,000 barrels a day.
The slow consumption growth of diesel can be attributed to various factors, including the increasing adoption of electric vehicles and the development of more fuel-efficient diesel engines. Additionally, the high prices of diesel fuel may also be a factor in the slow consumption growth. As a result of low stockpiles, diesel prices have been high, particularly in the Northeast of the US, where stocks are the lowest.
The low stockpiles of diesel are due to refiners struggling to keep up with demand. This is partly because refineries typically carry out maintenance during the fall, reducing their output. Additionally, Saudi Arabia and Russia, leaders in the OPEC+ alliance, have turned down the production of crude oils that are richer in diesel, further limiting the supply of diesel fuel.
Despite the slow consumption growth, the situation for diesel is still challenging due to the supply issues at heart. European refineries, for example, have been unable to build up supplies due to widespread unplanned outages, leaving inventories tight ahead of winter. This has resulted in higher prices and concerns about potential shortages, especially during the winter months when demand for heating oil competes with diesel.
In summary, while the consumption growth of diesel has been slow compared to other fuels, the world is still facing a challenging situation with low stockpiles and high prices. This is due to a combination of factors, including refinery maintenance, supply issues, and the increasing demand for diesel as a fuel for industry and transport. As a result, diesel prices are expected to remain high, and consumers may continue to face challenges in accessing this fuel source.
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Frequently asked questions
No, we are not running out of diesel fuel. However, there are low stockpiles, which result in higher prices.
The world's oil refiners are proving powerless to make enough diesel, which is a supply issue. Saudi Arabia and Russia have also turned down the production of crude oil, which is richer in diesel.
Low stockpiles can lead to higher prices, especially in the Northeast where stocks are the lowest, and diesel faces competition from fuel oil for home heating in the winter.
Refineries need to increase production to outpace demand and build up supplies.
