Mercedes Mullins
In October 2022, the United States faced a potential diesel fuel shortage, with the Energy Information Administration (EIA) reporting that the country had 25.4 days of distillate fuel left in storage. This sparked concerns about a possible economic slowdown and led to worries about a diesel supply chain collapse. However, by November, there were early signs of the shortage easing, with distillate fuel oil inventories increasing and exports slowing. While diesel prices remained high, the situation improved, and the risk of a complete diesel fuel shortage diminished.
| Characteristics | Values |
|---|---|
| Date of concern | October 28, 2022 |
| Number of days' worth of diesel in the US | 25.8 days |
| Number of days' worth of diesel in the US in 2021 | 35 days |
| Number of days' worth of diesel in the US in 2020 | 35.9 days |
| Number of barrels of distillate fuel oil inventories increased between October 7 and November 18, 2022 | 3 million |
| Average decrease in distillate inventories over the same period in the ten years before the pandemic | 11 million barrels |
| Number of barrels of distillate fuel oil supplied to the domestic market in the four weeks ending on November 18, 2022 | 4.03 million barrels per day |
| Number of barrels of distillate production per day in the four weeks ending on November 18, 2022 | 5.13 million |
| Expected diesel prices in early 2023 | > $5 per gallon |
| Expected increase in bills for homes that use heating oil in the 2022 winter season compared to 2021 | 45% |
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What You'll Learn
Diesel stocks continue to increase despite a possible economic slowdown
Despite fears of a diesel shortage in the US, stocks of road diesel and heating oil have shown signs of stabilisation and even slight increases. This is due to exceptionally high prices, which have encouraged production, discouraged exports, and possibly suppressed consumption. In the six weeks between October 7 and November 18, 2022, distillate fuel oil inventories increased by 3 million barrels, according to the US Energy Information Administration (EIA). This is contrary to the usual trend of a drawdown during this period.
The increase in diesel stocks comes despite a possible economic slowdown and various factors contributing to a supply crunch. These factors include the Russian invasion of Ukraine, the subsequent energy crisis in Europe, the closure or repurposing of several refineries in the US since 2020, increased demand, and refineries recovering from maintenance season.
Diesel prices have surged by about 50%, and the EIA predicted that these prices would remain high through early 2023, as demand for diesel fuel typically increases during the cold season. Diesel is crucial for running the global economy, as it is used in farming, construction, heating, and transportation, with trains, trucks, and ships relying on it.
While the US diesel stock has increased, it is still lower than in previous years. For example, on November 27, 2020, the US had 35.9 days of diesel supply in storage, compared to 25.4 days in October 2022. However, this increase in stocks has helped ease concerns of a diesel shortage, with experts confirming that the US will not run out of diesel fuel soon.
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High prices and a slowing economy are rebuilding inventories
In November 2022, there were concerns about a potential diesel fuel shortage in the United States. An October report from the Energy Information Administration (EIA) stated that the country had 25.4 days of distillate fuel left in storage, which sparked worries over a possible economic slowdown. However, this situation started to improve as inventories increased.
Distillate fuel oil inventories increased by 3 million barrels in the six weeks between October 7 and November 18, according to the EIA. This increase, though small, went against the typical trend of a drawdown during this time of year. It indicated that high prices and a slowing economy were beginning to rebuild inventories.
The high prices of diesel played a significant role in restraining consumption. In the four weeks leading up to November 18, the volume of distillate fuel oil supplied to the domestic market averaged 4.03 million barrels per day, the lowest for that time of year since 2016. Additionally, a sharp slowdown in exports occurred as foreign economic activity slackened, and high prices encouraged marketers to retain more distillates domestically.
Net distillate exports decreased by approximately 0.4 million barrels per day since the beginning of October, providing some relief to inventories. The high prices also incentivized refineries to process more crude oil and maximize the yield of middle distillates. Distillate production averaged 5.13 million barrels per day in the four weeks ending on November 18, an increase of 0.3 million barrels per day compared to 2021.
While the diesel fuel situation in the United States showed signs of improvement, the EIA anticipated that diesel prices would remain elevated through early 2023. This prediction was based on the typical increase in demand for diesel fuel during the cold season. The agency forecasted that diesel prices would stay above $5 per gallon for the remainder of 2022, resulting in a 45% increase in heating bills for homes using oil heat compared to the previous year.
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Diesel prices will remain high through early 2023
Diesel prices are unlikely to decrease in the near future, and will likely remain high through early 2023. This is due to a combination of factors, including high refining margins, strained export markets, and shrinking inventories.
In November 2022, the U.S. Energy Information Administration (EIA) reported that distillate fuel oil inventories increased by 3 million barrels between October 7 and November 18, indicating that high prices and a slowing economy are starting to rebuild inventories. However, the volume of distillate fuel oil supplied to the domestic market averaged 4.03 million barrels per day during this time, the lowest for that time of year since 2016.
The high prices are a result of surging diesel demand, used to power trucks, fuel machinery, and heat homes. The conflict between Russia and Ukraine has also played a significant role in keeping diesel prices elevated. The invasion led to a surge in gas prices in 2021 and 2022, with the national average peaking at $5.016 per gallon on June 14, 2022, according to AAA.
While there is some relief in sight, it may not be immediate. The EIA expects average U.S. gasoline and diesel prices to decrease in 2024 and 2025 due to increased inventories and refinery capacity. However, diesel consumption is projected to exceed 2023 levels in both 2024 and 2025, indicating that prices may remain high through early 2023 before any significant relief is felt.
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The Russian invasion of Ukraine and the subsequent energy crisis
Russia's invasion of Ukraine in February 2022 sparked the first truly global energy crisis. The conflict and subsequent Western sanctions disrupted oil and gas supplies, causing a rapid increase in prices. This, combined with the rebound from the pandemic, contributed to a cost-of-living crisis in many countries.
Prior to the war, Russia was the primary supplier of natural gas to Europe. In response to the invasion, Germany halted its approval of the Nord Stream 2 gas pipeline from Russia and began seeking liquefied natural gas from other countries. This triggered a termination of the decades-long partnership on gas between Russia and Europe.
The energy sector continues to feel the effects of the conflict, with energy markets facing an unusually high degree of geopolitical uncertainty. In Ukraine, the energy infrastructure is on the front line, as Russia targets power plants and key energy infrastructure, causing extensive damage and leaving many without reliable electricity or heat.
The war has also accelerated a shift towards sustainability and renewable energy sources. Governments have implemented policies that have expanded the world's capacity to produce renewable power, and the popularity of clean technologies such as electric vehicles and heat pumps is surging. The global energy crisis may ultimately accelerate the end of the fossil fuel era.
While there have been claims of an impending diesel fuel shortage in the United States, experts have refuted these assertions. Although diesel inventories are lower than in previous weeks, ongoing diesel production ensures that a shortage is unlikely. High prices and slowing exports have also encouraged production and discouraged consumption, leading to a stabilisation of diesel stocks.
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Refinery closures and increased demand impact supply
Refinery closures and increased demand have impacted the supply of diesel fuel. In October 2022, the Energy Information Administration (EIA) reported that the US had 25.4 days of distillate fuel left in storage, raising concerns about a possible economic slowdown. This was lower than the previous year's supply of 35.9 days in November 2020. The situation was attributed to a combination of factors, including the conflict in Ukraine, the resulting energy crisis in Europe, and the closure or repurposing of several US refineries since 2020.
The impact of refinery closures was exacerbated by increased demand for diesel fuel. Diesel is crucial for various sectors, including farming, construction, heating, and transportation. The cold season typically sees higher demand for diesel, as it is used for heating homes. The EIA predicted that diesel prices would remain high through early 2023 due to this seasonal demand.
The shortage also resulted from a strained export market. High refining margins and prices for diesel restrained consumption, and there was a sharp slowdown in exports as foreign economic activity slackened. However, high prices encouraged refineries to process more crude oil and maximize the yield of middle distillates. Distillate production averaged 5.13 million barrels per day in the four weeks ending on November 18, 2022, the highest for that time of year since 2017.
The diesel supply situation started to improve towards the end of 2022. US stocks of road diesel and heating oil showed early signs of stabilization and even slight increases as exceptionally high prices discouraged exports and possibly suppressed consumption. Distillate fuel oil inventories increased by 3 million barrels in the six weeks between October 7 and November 18, 2022, indicating that high prices and a slowing economy were beginning to rebuild inventories.
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Frequently asked questions
No, despite concerns in November 2022, the US is not running out of diesel fuel.
A combination of factors, including the Russian invasion of Ukraine, the energy crisis in Europe, refinery closures in the US, increased demand, and low inventory levels.
The US had approximately 25 to 25.8 days' worth of diesel inventory in late October 2022, according to the Energy Information Administration (EIA). This is lower than previous years, but it doesn't account for ongoing diesel production.
Yes, diesel prices surged by about 50% amid shrinking inventories and a strained export market. The EIA predicted that diesel prices would remain high through early 2023 due to increased demand during the cold season.
Yes, as of November 2022, there were early signs of the diesel shortage easing in the US. Distillate fuel oil inventories increased by 3 million barrels between October 7 and November 18, indicating that high prices and a slowing economy are rebuilding inventories.
