Ameer Randolph
The world is currently facing a diesel shortage, with the US experiencing particularly low levels of diesel fuel. In October 2022, the US had 25 days of diesel supply left, its lowest level since 2008. This shortage is due to several factors, including reduced oil production, post-pandemic demand surges, and the impact of the Russian invasion of Ukraine on global energy supplies. The US is not alone in this crisis, as the world's production of diesel fuel has struggled to keep up with demand since 2023, affecting both the availability and price of diesel fuel.
| Characteristics | Values |
|---|---|
| Diesel fuel shortage in the US | Due to reduced oil production, post-pandemic demand surge, manufacturing activity trends, and the Russian invasion of Ukraine |
| Diesel fuel in the UK | Known as "red diesel" or "gas oil"; used in agricultural vehicles, home heating tanks, and refrigeration units; official term for unmarked road diesel fuel is DERV (Diesel-Engine Road Vehicle) |
| Diesel fuel in other countries | Known as "distillate" in Australia; "Solar" in Indonesia, Israel, and the Middle East; "gas oil" in France |
| Bans on diesel vehicles | Germany, Norway, Britain, California, Quebec, China, and India have proposed or implemented bans on fossil fuel vehicles, including diesel cars and vans |
| Phase-out of fossil fuel vehicles | Encouragement of alternative forms of transportation, such as electric or hydrogen fuel trains |
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What You'll Learn
The US is facing a diesel shortage
Reduced Oil Production: The Organization of Petroleum Exporting Countries (OPEC) and Saudi Arabia implemented crude oil production cuts through 2024, resulting in lower overall oil production and reduced availability of diesel fuel.
Post-Pandemic Demand Surge: The pandemic may have ended, but its ripple effects are still impacting oil prices and diesel fuel deliveries. The US economy's recovery has been focused on services rather than manufacturing and exports, leading to a decrease in potential demand for diesel. However, as winter approaches, demand for diesel to heat homes is expected to rise, driving up prices.
Impact of the Russian-Ukrainian War: Russia's invasion of Ukraine has affected the availability and price of diesel fuel. International sanctions have prevented Russia, one of the world's major oil suppliers, from reaching many markets. Most Russian oil is now directed towards China and India, and some sources may be diverted to support the war effort. Additionally, changes to railroad activity, particularly in the West, have caused shortages of diesel exhaust fluid (DEF) and biofuels in the US.
To address the diesel shortage, the Biden administration has considered limiting fuel exports to lower consumer prices. The US is also receiving additional diesel fuel shipments from the United Arab Emirates, diverted from their original European destinations to the East Coast.
The diesel shortage in the US is expected to keep inflation and heating bills high during the winter, causing concerns among officials. National Economic Council Director Brian Deese stated that "all options are on the table" to replenish US diesel supplies.
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Imports from Russia have been banned
Since the Russian invasion of Ukraine, the EU has imposed sanctions on Russia in collaboration with G7 countries. These sanctions include bans and restrictions on the import and export of goods. The EU has prohibited the provision of certain business-relevant services to the Russian government or any legal entities established in Russia. This includes technical assistance, brokering and financial assistance, intellectual property rights, and trade secrets.
The EU has also imposed an import ban on raw materials for steel production, primary aluminium, processed aluminium products, and other metal goods. Additionally, there is a ban on the import of non-industrial diamonds, helium, stolen Ukrainian cultural heritage items, and luxury goods. The EU has also banned the export of luxury cars, certain machinery components, and other items such as cement, rubber products, wood, spirits, liquor, and high-end seafood.
The impact of the oil ban is significant, as the EU imported €71 billion worth of oil from Russia in 2021, covering 90% of EU oil imports from the country. The EU has introduced an exemption to the prohibition on the transport of Russian oil and petroleum products by sea to third countries when purchased at or below the price cap.
In response to US sanctions, Russia has also threatened to ban or restrict imports of US goods and services. Russian lawmakers have drafted legislation that would allow them to ban or restrict a range of US agricultural imports, pharmaceutical products, and technological equipment. Russia may also ban US companies from taking part in the privatization of state and municipal assets and increase charges for US planes using Russian airspace.
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Demand for diesel is at a two-year high
Diesel fuel is a type of fuel similar to heating oil, but with higher taxes in some countries. While diesel demand experienced a dip in Europe in 2016, the long-term forecast for diesel demand growth is strong. Lower prices often lead to greater consumption. In India, for example, there is a surge in hydrocarbon energy use, with the International Energy Agency forecasting that Indian diesel demand will more than double by 2040. ExxonMobil’s Outlook for Energy predicts that fuel demand for commercial transportation, including heavy-duty vehicles, marine, and rail, is likely to grow worldwide by 70% by 2040. This increase is attributed to emerging economies investing in infrastructure to support families transitioning to the middle class.
Diesel fuels the majority of commercial transportation, and this is not expected to change soon without radical technological advancements. In the short term, fluctuations in diesel demand will continue as the global supply re-balances. However, the current diesel inventory is well-supplied due to Chinese diesel exports, with China importing vast amounts of crude oil.
In the United States, a surge in gasoline demand has driven gasoline prices to near parity with diesel prices. This situation is expected to be temporary as refiners increase production to meet demand, potentially widening the price gap between gasoline and diesel. The summer driving season and the onset of colder weather will also increase demand for heating oil, which may drive up diesel prices.
While some countries are transitioning away from diesel vehicles, diesel fuel continues to be in high demand globally. The strong demand for diesel fuel is driven by its widespread use in commercial transportation and the increasing consumption in developing countries.
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The Biden administration is considering limiting fuel exports
The Biden administration is facing pressure from the oil industry to refrain from limiting fuel exports. The American Petroleum Institute and the American Fuel and Petrochemical Manufacturers have expressed "significant concerns" about the potential move in a letter to Energy Secretary Jennifer Granholm. The Biden administration's focus on battling surging consumer prices and criticism of oil companies for their profits have caused friction with the oil industry. While White House officials have stated that restrictions on energy exports are not currently being considered, they have also not been ruled out entirely.
The oil industry has argued that limiting fuel exports would decrease inventory levels, reduce domestic refining capacity, increase consumer fuel prices, and strain relationships with U.S. allies during the Russia-Ukraine conflict. They emphasize the importance of continuing Gulf Coast exports to rebalance markets and maintain supply levels. Additionally, they highlight the limited capacity of the U.S. refining industry to process the large volumes of light, sweet crude oil produced in the country's shale basins.
In contrast, the Biden administration has tools like the Strategic Petroleum Reserve to address regional fuel shortages and control gasoline prices. However, critics argue that limiting exports would worsen domestic supply problems and create a shortage on the global crude market, leading to price spikes. The administration's suspension of the Jones Act to facilitate relief efforts in Puerto Rico after Hurricane Fiona is also cited as an example of their willingness to take action during emergencies.
The clash between the Biden administration and the oil industry underscores the complexities of addressing energy-related challenges. While the administration aims to ensure fair prices and adequate supply for Americans, the oil industry emphasizes the potential negative consequences of limiting fuel exports on inventory levels, refining capacity, and relationships with allies. The outcome of this debate will have significant implications for the energy landscape in the United States and beyond.
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Reduced oil production and post-pandemic demand surges are factors
The United States is facing a diesel shortage, with inventories at near-record lows. This has been attributed to a combination of factors, including reduced oil production and surging post-pandemic demand.
During the pandemic, diesel fuel usage decreased significantly, leading to a build-up of inventories. However, as economic activity resumed post-pandemic, local diesel demand surged, outpacing the recovery in gasoline and jet fuel. This rapid increase in demand drained stocks, contributing to the current shortage.
Additionally, strong foreign demand for American diesel exports further exacerbated the situation. The US has been exporting diesel at unusually high levels, reducing the domestic supply available to meet the surging local demand. This dynamic has particularly impacted the northern part of the US East Coast, where inventories are low both seasonally and in absolute terms.
Moreover, the US has a lower refining capacity than before, reducing its ability to produce fuels like diesel. The number of US refiners has declined over the years, with only 124 active refiners out of 129 as of December 2023. This decrease in refining capacity constrains the country's ability to meet the high demand for diesel fuel.
The diesel shortage has significant implications for the US economy and households. Diesel is a critical fuel for powering major industries, including trucking, farming, and construction. The shortage has led to price hikes, increasing the cost of transportation and production for businesses. This, in turn, contributes to higher prices for consumers, impacting the affordability of essential goods and services.
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Frequently asked questions
No, but in 2022, the US faced a diesel shortage that threatened to keep inflation and heating bills high through the winter.
The diesel shortage in the US was caused by a combination of factors, including reduced oil production, increased post-pandemic demand, and the impact of the Russian invasion of Ukraine on global energy supplies and imports.
The invasion affected both the availability and price of diesel fuel. International sanctions prevented Russia, one of the world's major oil suppliers, from getting oil to market in many countries, including the US.
