Ameer Randolph
Rumours of diesel shortages have been circulating for years, with some claiming the US could run out of diesel in as little as 25 days. However, this is based on a technicality, and while diesel fuel inventories are projected to fall to their lowest levels since 2000, the chances of a true diesel shortage are slim due to the amount of oil production occurring globally. Nevertheless, diesel prices are expected to fluctuate, and unforeseen events such as geopolitical crises or natural disasters can impact diesel supply and prices.
| Characteristics | Values |
|---|---|
| Refinery closures | Two pending refinery closures will reduce U.S. production of refined petroleum products |
| Rising consumption | The U.S. consumption of jet fuel will rise to an all-time high next year |
| Increased biofuel substitution | Biodiesel and renewable diesel will comprise about 9% of U.S. distillate fuel oil consumption next year |
| Geopolitical instability | Escalations between Russia and Ukraine and violence in the Middle East |
| Hurricanes | Hurricanes Gustav and Ike disrupted gasoline and distillate production |
| Credit crunch | The cost of carrying inventory has increased |
| Seasonal changes | Refinery capacity drops in spring and fall when refineries perform maintenance |
| Demand | Demand for diesel is projected to be lower in 2009 than in 2008 |
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What You'll Learn
Refinery closures and rising consumption
The EIA forecasts that two pending refinery closures will reduce US production of refined petroleum products. When combined with expected consumption growth, inventories for these fuels are projected to decline through 2026, reaching their lowest levels since 2000. Lower inventories tend to increase fuel prices as market participants compete for a smaller pool of refinery production.
Hurricanes Gustav and Ike impacted gasoline and distillate production, with refineries focusing on gasoline post-hurricanes. Refinery capacity also typically drops in spring and fall for maintenance, and this has been further exacerbated by the closure of several unprofitable refineries.
The shift towards distillate production, which includes diesel, is driven by economic incentives as heating-oil futures command a premium over crude oil. This trend is expected to continue, with demand increasingly shifting towards distillate fuels.
While the US has a 25-day stockpile of diesel fuel as of October 2022, the risk of a shortage is influenced by consumption patterns. Geopolitical instability and conflicts can impact diesel fuel stockpiles, production, and prices. However, conflicts can also spur the production of more fuel to ensure adequate supplies. Overall, refinery closures and rising consumption are key factors that can contribute to diesel fuel supply concerns.
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Geopolitical tensions
In the context of Australia, fuel reserves reached a 15-year high, yet they still fell short of International Energy Agency member obligations. This discrepancy between domestic reserves and international standards raises concerns about the country's ability to withstand geopolitical tensions and potential supply disruptions. The vulnerability of agricultural supply chains to fuel shortages underscores the need for a more reliable safety net and a reduction in dependency on foreign fuel imports.
The United States, a significant player in diesel fuel production and consumption, has also experienced fluctuations in its stockpiles. As of October 2022, the country had a 25-day stockpile of diesel fuel, leading to rumors and concerns about potential shortages. However, it's important to note that diesel prices are influenced by various factors, including seasonal changes and refinery maintenance, and that the US has a history of maintaining diesel supply even during conflicts.
While geopolitical crises, such as the escalation between Russia and Ukraine and the violence in the Middle East, can impact diesel supplies and prices, it's worth noting that diesel fuel production and consumption are global endeavors. The diverse sources of crude oil and the varying levels of consumption worldwide mean that the chances of a true diesel shortage are minimal. Nevertheless, geopolitical tensions can contribute to economic fallout, impacting the demand for and cost of carrying inventory, which, in turn, affects the diesel fuel market.
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Economic crises
During economic crises, demand for diesel can decrease, leading to lower prices. This is because a weak economy can reduce industrial activity and transportation needs, decreasing the demand for diesel fuel. Additionally, new refining capacity in Asia can compete with US refiners for European demand, further lowering prices.
However, it is essential to consider that economic crises can also spur diesel production. For instance, during times of conflict, production may increase to ensure sufficient supplies.
While diesel prices can fluctuate during economic crises, it is rare for them to surge to levels that significantly impact industries dependent on diesel fuel. Nevertheless, economic crises can create uncertainty and affect the availability and pricing of diesel fuel, influencing industries and consumers alike.
Furthermore, economic crises can lead to refinery closures, reducing production capacity and impacting diesel fuel inventories. This can result in lower inventories of transportation fuels, including diesel, and potentially affect wholesale and retail fuel prices as market participants compete for a smaller pool of refinery production.
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Seasonal changes
In addition, refinery capacity typically drops during certain times of the year, such as spring and fall, when refineries perform maintenance and the demand for diesel is lower. This can further impact the availability of diesel fuel during these seasons.
Furthermore, seasonal swings in farmers' demand for diesel fuel can influence diesel fuel prices and availability. For example, during the summer driving season in the U.S., demand for gasoline typically increases, while diesel fuel may be in higher demand during other seasons, such as winter, when it is used for heating.
Overall, seasonal changes can impact the production, demand, and transportation of diesel fuel, contributing to fluctuations in supply and price throughout the year.
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Logistics problems
Another logistical issue that can impact diesel fuel supply is the distance between the source and the destination. The longer the distance, the more challenging and costly it becomes to transport the fuel, potentially leading to shortages. In addition, the availability and maintenance of transportation infrastructure, such as roads, bridges, and tunnels, can also affect the timely delivery of diesel fuel.
Furthermore, logistical problems can arise due to the limited number of fuelling stations or distribution points. In the case of Nigeria, people have complained that fuelling stations are too scarce and far between. This can create bottlenecks and hinder the efficient distribution of diesel fuel, leading to shortages in certain areas.
Additionally, logistical challenges can be exacerbated by geographical constraints, such as mountainous terrain or remote locations. Transporting diesel fuel to these areas may require specialised equipment and additional resources, increasing the complexity and cost of distribution.
Lastly, the coordination and management of the supply chain play a crucial role in ensuring an uninterrupted supply of diesel fuel. Inefficiencies, delays, or breakdowns in the supply chain can disrupt the flow of fuel and lead to shortages. Effective communication, real-time data sharing, and optimised inventory management are essential to overcoming these logistical challenges.
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Frequently asked questions
In 2024, there were concerns about a potential diesel shortage in the US. However, it was also noted that there was enough oil production happening both domestically and globally for the chances of a true diesel shortage to be slim.
Refinery closures, rising consumption, hurricanes, geopolitical instability, and economic crises can all impact diesel fuel supplies and prices.
Refinery closures can reduce the production of refined petroleum products, leading to declining inventories and potential supply shortages.
When consumption increases, inventories can decrease, reducing the number of days of supply available. This can lead to concerns about potential fuel shortages.
