Sylvie Willis
Despite widespread reports of a diesel fuel shortage in the United States, the country is not running out of diesel fuel. However, low stockpiles of distillate fuels have resulted in higher diesel fuel prices, particularly in the Northeast region, where stocks are the lowest. While the United States has a lower supply of diesel fuel than in previous weeks, with data from the Energy Information Administration (EIA) showing approximately 25 days' worth of supply as of late October 2022, this figure does not account for ongoing diesel production and imports. Industry experts have clarified that the country will not run out of diesel and that the EIA's 'days of supply' figure represents a measurement of fuel in storage, not considering other sources like domestic production and imports.
| Characteristics | Values |
|---|---|
| Is the US running out of diesel fuel? | No, the US is not running out of diesel fuel, despite low stockpiles. |
| Reason for low stockpiles | Less global refining capacity since 2020, high demand in early 2022, and global trade disruptions linked to Russia's invasion of Ukraine. |
| Possible consequences of low stockpiles | Higher diesel fuel prices, especially in the Northeast. |
| Possible short-term regional shortages | Possible, but suppliers will rally to fill in any gaps in supply. |
| Government action | Governors of South Dakota, Iowa, and Nebraska issued emergency waivers for truckers transporting fuel. |
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What You'll Learn
Diesel fuel supply and demand in the US
As of late October 2022, the United States had approximately 25 days' worth of diesel fuel in storage. This has prompted concerns of an impending diesel shortage in the country. However, experts have clarified that this figure does not indicate an imminent outage, as it does not account for ongoing diesel production and imports.
The low inventory levels are attributed to various factors, including reduced global refining capacity since 2020, high demand in early 2022, and trade disruptions due to the Russia-Ukraine conflict. Additionally, there has been an increased demand for diesel fuel as a result of the Mississippi River drought. The cutoff of Russian oil imports has also impacted supply, as the US was importing nearly 700,000 barrels per day of petroleum and petroleum products before the invasion of Ukraine.
While the country is not facing an immediate risk of running out of diesel, low stockpiles have resulted in higher diesel fuel prices, particularly in the Northeast region, where stocks are the lowest. Some regions, like the Northeast and Mid-Atlantic, may experience tighter supply, and short-term regional shortages could occur. However, the dynamic nature of the fuel supply chain means that suppliers will work to fill any gaps in supply, and governments can intervene to expedite fuel transport, as seen in South Dakota, Iowa, and Nebraska.
The EIA's 'days of supply' figure represents the number of days of inventory based on current consumption and does not consider ongoing production and imports. It is calculated by taking US inventory and dividing it by daily demand. While this number has dropped to historically low levels, indicating that refiners are struggling to keep up with demand, it does not imply that outages are imminent.
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Refinery capacity and production
In recent years, U.S. refinery capacity has experienced a decline due to the closure of some unprofitable refineries. This reduction in capacity has contributed to the tightening of the diesel fuel market. According to Tom Kloza of the Oil Price Information Service, October 2022 witnessed an extensive amount of refinery maintenance across the United States, which is uncommon. This maintenance period contributed to a decrease in refinery output.
However, it is important to note that refineries possess a degree of flexibility in adjusting their production. While it is a relatively small amount, they can shift some of their gasoline production to diesel. Additionally, the dynamic nature of the fuel supply chain enables suppliers to respond to gaps in supply. For instance, ocean tankers carrying diesel to Europe have been redirected to the U.S., helping to bolster diesel supplies.
The United States has witnessed a decrease in imports of petroleum and petroleum products since the invasion of Ukraine by Russia. According to Forbes, prior to this conflict, the U.S. imported approximately 700,000 barrels daily, which included refinery inputs that augmented distillate supplies. The reduction in these imports has had a noticeable impact on overall diesel supplies in the country.
Despite low stockpiles of distillate fuels, including diesel fuel, industry experts assert that the United States will not suddenly run out of diesel fuel. The EIA's calculation of "days of supply" does not indicate an imminent outage, as it solely considers fuel in storage and does not account for ongoing diesel production or imports. While there may be regional variations and temporary shortages at individual stations, the country is not on the brink of a complete diesel fuel shortage.
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Diesel imports and the impact of the Russia-Ukraine conflict
The United States has experienced a sharp increase in diesel fuel prices, which has been attributed to a combination of factors, including low stockpiles, refinery maintenance, and the Russia-Ukraine conflict. Before Russia's invasion of Ukraine, the U.S. imported nearly 700,000 barrels per day of petroleum and petroleum products, according to Forbes. The conflict has disrupted these imports, contributing to the rise in diesel prices.
The Russia-Ukraine conflict has had a significant impact on energy markets, with diesel and gasoline prices surging after the invasion in February 2022. The U.S. and its allies imposed economic sanctions on Russia, including halting the Nord Stream 2 gas pipeline. In response to these sanctions, Russia has reduced its fuel exports, with Moscow scaling back its exports to near-historic lows. This reduction in exports has contributed to a global scarcity of diesel fuel, driving up prices.
Additionally, Ukraine has targeted Russian oil refineries with drone strikes, further disrupting Russia's fuel production and exports. This has led to a decrease in Russia's diesel exports and has sent local prices soaring. While most Western countries have stopped importing Russian diesel, some countries, such as the United Arab Emirates and a few South American and North African nations, continue to do so.
The impact of the Russia-Ukraine conflict on diesel imports and prices in the U.S. is also influenced by the overall volatility of the energy market. The conflict has caused disruptions to oil flows from Russia, and the low spare production capacity in other countries has resulted in higher prices. The sanctions on Russia's oil industry have further contributed to the price spike.
While the U.S. is not facing an imminent diesel fuel shortage, the combination of factors, including the Russia-Ukraine conflict, has resulted in higher diesel prices and concerns about potential regional shortages. However, the dynamic nature of the fuel supply chain means that suppliers can adapt and respond to gaps in supply, preventing widespread outages.
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Regional shortages and price increases
While the United States is not running out of diesel fuel, low stockpiles have led to regional shortages and price increases.
In November 2022, the U.S. Energy Information Administration (EIA) reported that the country had 25.8 to 25.9 days' worth of diesel supply, down from 35 days in 2021. This figure, which was the lowest since at least 1991, led to concerns about an impending diesel shortage. However, experts clarified that this number only accounted for fuel in storage and did not include ongoing diesel production or imports.
Despite this, the low stockpiles have resulted in regional shortages and price increases. Some cities, particularly in the Northeast and Mid-Atlantic regions, have experienced temporary outages at fuel stations. These shortages have been attributed to various factors, including increased demand, reduced refining capacity, and global trade disruptions due to the Russia-Ukraine conflict.
The Northeast region, with the lowest stocks, has seen the highest diesel prices. Mansfield Energy's Alan Apthorp noted that short-term regional shortages are possible, with some cities running dry for a few days. However, he added that the fuel supply chain is dynamic, and suppliers will work to fill in the gaps. The governors of South Dakota, Iowa, and Nebraska have issued emergency waivers to expedite the transport of fuel, helping to mitigate the impact of regional shortages.
The situation has also led to price increases. Abhi Rajendran, a research scholar at Columbia University, noted that diesel prices have been rapidly increasing for several weeks, reflecting the market's tightness. The competition for diesel fuel in the Northeast during the winter months, when it is also used for home heating, has further contributed to the higher prices in that region.
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Misinformation and the interpretation of EIA data
In November 2022, there were concerns about the United States running out of diesel fuel. This was based on data from the Energy Information Administration (EIA) that showed a 25-day supply of diesel fuel. This figure, however, did not account for ongoing diesel production or imports, and was misinterpreted to mean that the country would run out of diesel fuel imminently.
The EIA's 'days of supply' figure is calculated by taking the U.S. inventory and dividing it by daily demand. This calculation assumes that all oil refineries have stopped producing fuel, which is not a likely scenario. Industry experts confirmed that while the inventory levels were low, the country would not run out of diesel fuel soon.
The misinterpretation of the EIA data was driven by a widespread misunderstanding of government statistics. Some social media users and media outlets claimed that the United States was on the verge of running out of diesel fuel, with some even suggesting that it would happen before Thanksgiving 2022. This misinformation was further spread by a highway sign in Pennsylvania that warned of "no diesel" at a fuel station, which was later attributed to a computer issue.
The low inventory levels of distillate fuel oil, which is primarily consumed as diesel, were due to reduced global refining capacity, high demand, and global trade disruptions caused by the Russia-Ukraine conflict. While there may be regional shortages and higher diesel prices, particularly in the Northeast, it is important to understand that the EIA's 'days of supply' figure does not indicate an imminent outage.
To clarify, the EIA spokesperson Jeff Barron stated that the 'days of supply' measurement only accounts for fuel in storage and does not consider other sources like domestic production and imports, which continuously replenish the supply. Experts like Patrick De Haan and Carey King further emphasized that the low inventory levels did not mean that outages were imminent and that diesel production occurs daily.
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Frequently asked questions
No, the United States is not running out of diesel fuel, despite low stockpiles. However, this could result in higher prices and short-term regional shortages.
The low stockpiles are due to a decrease in global refining capacity, high demand, and global trade disruptions linked to Russia's invasion of Ukraine.
The U.S. government and individual states are taking action to help expedite the transport of fuel. Additionally, suppliers will work to fill in any gaps in the supply chain.
