Katerina Swanson
In 2022, the U.S. Energy Information Administration reported that the country had 25 days' worth of diesel supply, the lowest since 2008. This figure is calculated by dividing the amount of diesel in storage by the amount typically consumed in a day. However, it does not account for imports and domestic production, and industry experts have stated that the U.S. will not run out of diesel. The low supply has been attributed to weak refinery capacity and difficulty in transporting fuel, particularly to the Northeast.
| Characteristics | Values |
|---|---|
| Days of diesel fuel supply in the US | 25 days |
| Diesel consumption in the US | 166.47 million gallons of total distillates per day (as of 2017) |
| Diesel consumption in the US transportation sector | 3 million barrels per day (as of 2023) |
| Diesel supply level for comfort and liquidity | 35-40 days |
| Diesel supply level for tightness in the market | 30 days |
| Diesel supply level for a critical shortage | 25 days |
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What You'll Learn
The US diesel supply is at its lowest level since 2008
The current situation has brought to light a structural problem with the US diesel supply. According to experts, the issue lies in the country's lack of refining capacity and pipeline infrastructure, especially in the Northeast. This has resulted in diesel not reaching the regions where it is needed, and the product being more easily exported to Europe.
The low refining capacity can be attributed to various factors, including a refinery fire in Pennsylvania in 2019 and reduced demand during the pandemic lockdowns. Additionally, there has been a decrease in global refining capacity since 2020, along with high demand in early 2022 and trade disruptions due to the Russia-Ukraine conflict.
Despite the low supply, industry experts have advised against panic buying and encouraged consumers to stay in touch with fuel suppliers. While there may not be widespread fuel stations with pumps covered, prices are expected to increase. Retailers, however, do not foresee a reason for immediate alarm, and the market is adjusting to efficiently distribute the product.
The US diesel supply is a critical component of the country's energy infrastructure, with diesel being widely used in heavy trucks and the transportation sector. With gasoline consumption being close to three times higher than diesel, the latter still amounts to almost three million barrels per day, highlighting the significance of diesel fuel in the US energy landscape.
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The low supply is due to Biden's SPR releases
The low supply of diesel fuel in the US has been attributed to a variety of factors, including weak refinery capacity, a lack of pipelines, and the Jones Act, which makes it easier and cheaper to export diesel to Europe. However, one significant factor contributing to the low supply has been President Joe Biden's releases from the Strategic Petroleum Reserve (SPR).
In an effort to stabilize gasoline and diesel prices, Biden announced that he would continue drawing from the SPR, releasing approximately 1 million barrels per day over a six-month period as part of a three-step plan. This plan, known as the ready and release plan, aimed to prevent oil price spikes and respond to international events, particularly Russia's invasion of Ukraine. The release of 180 million barrels, which began in May, was the biggest release from the SPR since its creation in 1975.
Biden's use of the SPR to manage oil prices has been a source of criticism, with some arguing that it was done for political reasons rather than an emergency. The SPR, which is now at its lowest level since 1984, still holds more than 400 million barrels of oil, which Biden assures is more than enough for any emergency drawdown. However, analysts are unsure if the administration's plan to refill the reserves will achieve the desired goals.
The impact of Biden's SPR releases on diesel prices has been mixed. While it may have lowered gasoline prices by 17 to 42 cents per gallon, diesel prices have continued to climb. This can be attributed to the complex interplay of various factors, including the war in Ukraine, refinery capacity issues, and the Jones Act, which collectively contribute to the low supply and high prices of diesel fuel in the US.
Despite the concerns, Biden has defended his approach, stating that the SPR releases are a response to the decisions of oil-producing nations like Saudi Arabia to cut production and maintain high oil prices. He has also urged oil companies to increase production and invest in their future ability to sell oil to the US, rather than focusing on stock buybacks or dividends.
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Diesel inventories are low, but the market is adjusting
In late October 2022, the U.S. Energy Information Administration (EIA) reported that the country had around 25 days' worth of distillate fuel supply left in storage. This figure, referred to as the 'days of supply', reflects the amount of diesel in storage relative to the amount typically consumed in a day. While this number fluctuates, it had not been this low since 2008.
The low inventory levels have been attributed to weak refinery capacity and difficulties in distributing fuel across the country, particularly to the Northeast. According to industry experts, the 'days of supply' figure does not indicate that the United States will run out of diesel fuel completely. This is because the figure does not account for other sources of diesel, such as imports and domestic production, which remain operational.
The diesel supply issue is a structural problem, but the market is adjusting to get the product where it needs to be as efficiently as possible. Tiffany Wlazlowski Neuman, vice president of public affairs for NATSO, the trade association representing America's travel centers and truck stops, affirmed that "this is a structural problem, but the market is adjusting to get product where it needs to be as efficiently as possible".
Despite the tight supply, retailers do not foresee a cause for immediate alarm. Mansfield Energy, for instance, assured consumers that they "shouldn't expect to see widespread fuel stations with bags over the pumps," although "retail stations will find local pockets of inventory outages and higher prices." Instead of panic buying, Mansfield recommended that bulk fuel buyers stay in touch with fuel suppliers and re-evaluate their storage situations.
While the market is adjusting, the current situation is one of vulnerable stability, and any disrupting event could potentially impact the balance.
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The US diesel market is tight, but not alarming
The low inventory of distillate fuel oil is primarily due to reduced global refining capacity since 2020, high demand in early 2022, and global trade disruptions caused by Russia's invasion of Ukraine. The US has a particular problem with a lack of refining capacity and pipelines in the Northeast, making it easier and cheaper to export diesel to Europe.
Despite the tight market, there is no cause for immediate alarm. According to retailers, the market is adjusting to get products where they need to be as efficiently as possible. While diesel prices are expected to climb, there shouldn't be widespread fuel stations with pumps covered up, and fuel continues to be produced and imported.
It's important to understand the context behind the "days of supply" figure. This number reflects the amount of diesel in storage relative to typical daily consumption. It does not mean that production and imports will suddenly stop, nor does it account for ongoing production and imports. Therefore, it is unlikely that the US will run out of diesel fuel imminently.
While the US diesel market is tight, with low inventories and increasing prices, there is no need for panic buying or concern about an immediate shortage. The market is adjusting, and diesel fuel continues to be available, albeit at potentially higher prices.
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Diesel prices are expected to increase
In 2022, the U.S. Energy Information Administration reported that the distillate fuel supply, which includes diesel, stood at approximately 25 days' worth of stock. This level of inventory is considered critically low and has raised concerns about potential diesel shortages. The low refining capacity is attributed to various factors, including a refinery fire in Pennsylvania in 2019 and reduced demand during the COVID-19 pandemic, which affected refinery operations.
The current situation has been exacerbated by issues with distributing diesel to where it is needed, particularly in the Northeast. This is due to a lack of pipelines in that region, making it easier and more cost-effective to export diesel to Europe. As a result, diesel prices are anticipated to climb further, with Andy Lipow, president of Lipow Oil Associates, predicting a 15 to 20 cents increase in the following weeks.
The impact of rising diesel prices extends beyond just the fuel industry. Diesel is extensively used in heavy trucks and across the transportation sector, including public and personal transportation by road vehicles, airplanes, trains, and ships. With diesel consumption in the transportation sector amounting to almost three million barrels per day, any increase in diesel prices will have a significant ripple effect on the cost of goods and services that rely on diesel-powered transportation.
To mitigate the impact of rising diesel prices, some steps can be taken. For fleets buying bulk fuel, it is important to avoid panic buying and maintain open communication with fuel suppliers to navigate the challenging market conditions. Owner-operators should also pay close attention to fuel surcharges and carefully plan their fuel-ups to avoid regions where pricing is volatile. Additionally, exploring alternative fuel sources, such as biofuel, can help reduce dependence on diesel and provide more sustainable options for the future.
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Frequently asked questions
As of 2022, the US had 25 days' worth of diesel fuel supply. This figure does not take into account imports and domestic production.
The number of days of diesel fuel supply in the US fluctuates. If the US refines more diesel than it burns, the number goes up, and if it burns more than it refines, the number goes down.
A low diesel fuel supply can lead to increased diesel prices and potential shortages, especially in times of crisis.
The low diesel fuel supply in the US in 2022 was attributed to weak refinery capacity and difficulties in distributing fuel across the country, particularly to the Northeast.
The US diesel fuel market tends to be comfortable when inventories are around 35-40 days. At 30 days, the supply begins to tighten, and at 25 days, there is critically low fuel available during a crisis.
