Yves here. We’ve been warning for months that diesel supplies were tight in the US and Europe, with no strong reason to think they’d get much better and cause to think the squeeze could worsen.
Even though the mainstream press is finally taking notice of diesel scarcity, the commentary has gone from largely ignoring the issue to undue panic. The right wing has been hammering on the “US down to only 25 days of diesel storage” as if that means the US will be out of diesel in 25 days. No trucking! No Santa, um Amazon deliveries for the holidays! Grocers bereft of perishables like fresh veg, bread, and milk!
Playing “25 days of storage” as if it means “out in 25 days” is fact-free fearmongering. What will determine the degree of further drawdown of is new supplies versus usage. It is also worth keeping in mind that this level is only 20% below the five year average for this time of year.
However, there are distribution issues, with some parts of the US particularly hard up. It is also pretty certain that the shortages will be largely addressed via rationing via price. That means the diesel shortfall will produce higher delivery costs, which will then get built into end prices for business and consumer goods and services. So even though widespread transit paralysis isn’t in store, letting price be the device to force businesses and consumers to cut back isn’t pretty.
For instance, Fox News picked up and amplified a memo by Mansfield Energy last Friday confirming diesel shortages. Mansfield issued a statement Monday meant to counter the Fox histrionics…but it was far from cheery. Key section:
For diesel specifically, the shortage will be painful at the macro level, but hopefully manageable at the micro level. Put another way – a tight diesel supply will force prices to go up, which will eventually make it too expensive for some people. High prices will bring demand back down enough that it balances with limited supply. At the US economy level, that means pain as consumers cut back and businesses slash costs. At the local, load-by-load level, supply will still be available for those for whom diesel is a business-critical priority.
That’s not to say there won’t occasionally be situations where there is a true physical lack of products. Some cities might run dry on diesel for a few days, at least at the terminal level. But the fuel supply chain is dynamic, and suppliers will rally to fill in any gaps in supply. Once again, those shortages will drive up prices, which will make it economical to long-haul product from surrounding markets which do have supply. The fuel will be delivered but at higher costs.
Now to the take from OilPrice.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
- The U.S. diesel shortage is worsening as distillate inventories crash to multi-year lows.
- U.S. refiners permanently shut down some refinery capacity at the start of the pandemic when fuel demand plunged.
- A diesel shortage and high diesel prices don’t bode well for the global economy, which could tip into recession at some point next year.
Multi-year low inventories and constraints in supply are exacerbating a diesel shortage in the United States, especially on the East Coast.
Diesel demand continues to be strong after recovering faster from the pandemic slump than other fuels such as gasoline, refiners say.
But several factors have combined this year to deplete U.S. distillate inventories, which include diesel and heating oil. And ahead of the winter, the distillate fuel crunch is worsening.
U.S. refining capacity is now lower than it was before Covid, as operable refinery capacity shrank in 2021 for a second consecutive year to stand at 17.9 million barrels per calendar day as of January 1, 2022, according to EIAestimates. U.S. refiners permanently shut down some refinery capacity at the start of the pandemic when fuel demand plunged, while others closed facilities to convert them into biofuel refineries.
Some refineries were under maintenance this autumn, reducing the availability of products. In addition, the U.S. banned imports of all Russian energy products after the Russian invasion of Ukraine and hasn’t imported any petroleum products from Russia since April
Lower refinery capacity in the U.S. since the pandemic, seasonal maintenance at refineries globally, and a major strike in France have all combined in recent weeks to create a shortage of middle distillates, not only in the United States, but also worldwide.
The world is also scrambling for diesel supply also in view of the looming EU embargo on Russian fuel imports by sea, expected to kick in in early February.
A diesel shortage and high diesel prices don’t bode well for the global economy, which is slowing down and could tip into recession at some point next year. Distillate fuels are used in transportation, agriculture, manufacturing, and heating
In the U.S., distillate fuel inventories are about 20% below the five-year average for this time of year, according to the EIA’s latest weekly inventoryreport. The U.S. has just 25 days of diesel supply in reserve, with some regional markets very tight.
According to CNBC, U.S. diesel reserves at the end of October have never been so low since 1951, with the Northeast most exposed to low levels of diesel stocks.
Not that refiners aren’t trying—refinery utilization on the East Coast was at 102.5% in the week to October 21, per EIA data.
Yet, distillate inventories are much lower than normal, and diesel and heating oil prices remain high and stoke inflation as they make consumer goods and heating bills more expensive.
Households in the Northeast who rely on heating oil for space heating will see 27% higher bills this winter compared to last winter, the EIA said in its Winter Fuels Outlook in October.
“Our forecast for heating oil margins this winter reflects price pressures that have currently been affecting the U.S. distillate market, including low inventories, low imports, and limited refining capacity,” the EIA said.
For diesel, one fuel supplier has already issued an alert for the East Coast.
“East Coast fuel markets are facing diesel supply constraints due to market economics and tight inventories,” Mansfield said last week.
“Because conditions are rapidly devolving and market economics are changing significantly each day, Mansfield is moving to Alert Level 4 to address market volatility. Mansfield is also moving the Southeast to Code Red, requesting 72 hour notice for deliveries when possible to ensure fuel and freight can be secured at economical levels,” the supplier said.
The Biden Administration hasn’t ruled out the idea of limiting U.S. fuel exports in order to restore inventories and lower prices. Refiners are opposed to that idea, saying that “Banning or limiting the export of refined products would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices, and alienate U.S. allies during a time of war.”
Tom Kloza, Global Head of Energy Analysis at OPIS, told USA Today last week, “Between now and the end of November, if we don’t build inventories, the wolf will be at the door.”
“And it will look like a big ugly wolf if it’s a cold winter.”
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From Vermont.
Nearly all snow plowing and electric line upkeep equipment runs on diesel.
The US is only in this position because of idiots in Washington and um because of markets. The rest of the western world has a diesel problem, but the US only does because idiots allow it. A full 25% of US diesel production is exported… about 1.2M barrels the week Oct 21st… up from the prior week of 1M barrels.
…the 1.2M barrels exported is about on par with the current 4 week average, but the 4 week average is running about 30% higher than the 4 week average this time last year.
Maybe we should ask the Fox News pundits if they’d support socialism and government intervention in this case to restrict the amount of diesel we export.
Considering it was government intervention that caused the problem (disincentiving diesel for so long and now meddling in Russia) I’m not sure what that would prove. The logical response would be “no we don’t support government intervention and that’s what got us in this mess*”
*Of course one could point out all the subsidies and government intervention that made demand for diesel possible, ie roads, but that’s always been the case
yep, obama opened up the bonanza spigot on exports of oil products that in most cases, came off of federal lands, that is land that we the people actually own.
but i am sure the nafta democrats will be saying higher prices, means less consumption, means more available fuel, which means markets work.
but nafta democrat, what about freezing people, and stalled trucks creating scarcity, the nafta democrat will say, they should have learned to code.
I really doubt Mansfield Energy where they say-
‘a tight diesel supply will force prices to go up, which will eventually make it too expensive for some people. High prices will bring demand back down enough that it balances with limited supply.’
This sounds like classic capitalism but this is not we are dealing with here. You can get a situation where you can’t get access to a commodity or perhaps you can only get a limited amount of that commodity. The gas situation in Europe is an example here. High prices won’t fix it as you cannot cut back on gas in winter for heating as it is a vital necessity. Can people in Vermont cut back on oil heating this winter too? Same here with diesel. Mansfield Energy says the solution is high prices but this is not TVs or microwaves that they are talking about – it is diesel. Like for tractors to bring in food or truck transport or anything else that makes our civilization run. So if there were the high prices at work here, it would have to be paid with higher prices for consumers who may, or may not be able to even pay for it. And of course this will have an inflationary effect like you would not believe as all these price rises feed into the economy as a whole. And the unofficial rate in the US is already supposed to be about 18% right now. Since I know bugger all about how economies really work, perhaps I should hire myself as a consultant to Mansfield Energy.
>it would have to be paid with higher prices for consumers who may, or may not be able to even pay for it.
Isn’t that what Mansfield said?.. those who can’t afford the end goods won’t which reduces the demand for diesel
Sorry but I think that you missed my point. If you lived in Vermont and it was a freezing, icey cold winter in a coupla months, are you going to say no, I refuse to pay such high prices. Some things are essential that you have to buy no matter what the price. Same with farmers needing diesel to run their tractors for their farms – or go bust. Or truck companies that have to deliver goods or go out of business. Not buying it – even at sky high prices – is not a choice.
Exactly Mr. Rev Kev! A number of farmers, loggers, excavation companies and on and on are getting shellacked right now. Also all the first responder vehicles.
Up here in Vermont yesterday clean diesel is $5.99/gallon,
off road, $5.59/gallon. Imagine having to run some of the larger excavators that burn a hindered gallons or so a day. A number of folks are contemplating just shutting down rather than try to keep the tanks full. Only so much cost can be passed on before people decide to mothball projects. How many of us have gotten invoices lately that has a new line: fuel surcharge?
Diesel is used in way more equipment than can be imagined and must be used at whatever price it can be obtained at or it’s shutdown time.
Imagine the railroads and the diesel engines in those things and the amount of fuel they use for power generation. Not knowing anything about it, maybe railroads purchase fuel differently than most. Of course, if the railroad workers hit the picket line in a few weeks and t trains are idled…
Dominos stood up in a long chain comes to mind, and when one goes over…
Where I live we deliver to a rail yard. A short run operation that has about a half dozen or so locomotives. Depending on the week they have they will pre order anywhere from 3,000 to 9,000 gallons straight from truck to train. They use off road which is of course dyed red. Not sure how the big guys work on deliveries though I’m guessing they have their own depots.
We supply a bunch of farm operations as well. FYI heating oil types start calling around and get your best price, top off and dial it back. The outfit I work with did not build in inventories during the summer as they have done in recent years so basically the transports are coming in and deliveries are being made. Since locally our supplies are what I consider to be low, the delivery vehicles have to travel a bit farther to load up and head to your home.
Transports will price their delivery based on how far they have to go to make said delivery. In other words, if your home supplier is in an outlying area, the transport from refinery to your local supply yard will cost more. Locally that’s what we are doing. Loading up in areas that are serviced by a major roadway. Beltway etc. Cheers everyone and tighten your belts. Going to be interesting in a not good way.
I understand your point, but it’s not inconsistent with Mansfield. Yes – if it’s an inelastic type good you’ll pay more. If it’s elastic you won’t. Either way, less purchases of the elastic good serves to lessen overall demand, exactly Mansfield stated
And even if it is an inelastic good-if you can’t afford it you can’t afford it. Business shutting down is another way to reduce demand.
Business shutting down is another way to reduce demand.
So is freezing to death I suppose.
On Reddit I recently read a guy in VT describing how he was collecting anything he could find to burn (mainly green wood) since his wife was pregnant and they can’t afford heating oil. Well, almost anything. I remember reading a few years ago how in some parts of West Virginia people burn tires for heat because they are destitute. If we see tire burning in VT, it will really be close to end of days. There was a tire fire about fifteen miles from us years ago and it was awful even from afar.
Tire fires, when they’re in large piles, are very difficult to extinguish.
There was one at a logistics materials yard on the south side of Chicago, used tire scrap which burned for several days.
While knowing what a “25 days of storage” doesn’t mean it’s even better to know what it does mean.
So the folks that know things have been talking about the approaching fork in the road related to climate change and burning petroleum. How do you even begin that journey without breaking with the ‘drill baby drill’ mindset, and pushing users to alternatives? The Majors are sure as hell not going to do us any favors.
Got the last two yellow diesel cans from the local big box hardware/plumbing/home improvement store. Filled them and added fuel preservative. Now have a tank’s worth set aside, stored next to the gennie gasoline for when Reddy Kilowatt decides to pre emptively cut our power if a breeze blows. Line maintenance cuts into shareholder value, after all.
I think Doctorow’s “Chokepoint Capitalism” has already been referenced in NC. Looks as if that’s what’s in play.
Love that term. Have been ranting about why smart meters for gas and electricity are evil. They can be shut off remotely, for non payment of bills, for national emergency, or more appropriate to “Chokepoint Capitalism” when someone else bids higher than you for scare electricity or natural gas.
That is, the billionaire down the line offers 10 dollars a kilowatt hour in an online auction when generating capacity is down and you cannot match that, so click, off goes your smartmeter and you get to freeze, take icebaths and eat cold cuts.
No smart meter? They have to send someone out to manually disconnect your service. Not going to happen.
Pro tip…I have to use a lot of gas in the jugs for the boats. The stabiliser works but what I do is fill the boats from the cans, then take the cans to the gas station and fill them rather than letting the cans sit.
The Neoliberals wanted the US to kick socialist Venezuela to the curb. They were indignant that there wasn’t unfettered access to the Venezuela market. If a little socialism were accepted then we would now have plenty of heavy petroleum feedstock for diesel.
“Banning or limiting the export of refined products would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices, and alienate U.S. allies during a time of war.”
Can someone explain to me how banning exports results in decreased inventory?
It has to do with refining capacity. There are different grades of oil (broadly: light/sweet and heavy/sour) and the refinery is built to handle a particular grade. Most crude produced in the US (via fracking) is of the light/sweet variety. However, most of our refineries are set up for heavy/sour. So every day we export light/sweet crude (mostly to Asia) and import heavy/sour (from Canada, S. America, and the Middle East). An export ban would cause the global oil market to seize up. We can’t refine (much of) our own oil so we would be sitting on a bunch of crude that we would be unable to turn into useful products.
Further, no refiner is going to build new light/sweet (or retrofit an existing heavy/sour) refinery. The payback on the investment is 40 years and they are being told by everyone that their business is doomed. No board would greenlight such an expenditure. No matter how much Elizabeth Warren screams, the only logical choice for any oil company today is to maximize profits on the investments you’ve already made and return as much as you can to shareholders before the company is shut down by the govt. There is no reason to invest any capital as it will only become stranded.
Thank you. Finally an explanation that actually explains what is going on.
The US Energy Information Administration tracks nearly everything to do with oil in the US, so they are a handy source to see what’s going on. Information is broken down geographically into five PADD territories (‘Petroleum Administration for Defence Districts’), as regionally you can have significant supply problems in one area of the country while somewhere else could be swimming in oil. PADD 1A (the New England states) seem to be the worst off by far, with stocks at less than half of what they were at this time last year (check the EIA’s ‘This Week in Petroleum’ page for distillates, next update on supplies should be tomorrow ).
As Yves notes, we are currently 20% below the five-year average for Distillate stocks on hand (which covers diesel and heating oils), from around ~130 million barrels down to ~106 million barrels today. So typically the country is at 28-30 days of supply ‘normally’, but we’ve been trending downward since the big bump from covid two years ago.
Interestingly, total distillate production is actually up by ~400 000 barrels per day (at 5.013 million/bpd) compared with this time last year, where it stood at 4.621 million/bpd. Imports however, are down ~150 000 barrels per day compared with this time last year, while US exports of distillates is up by 361 000 barrels. The US is exporting almost 1.3 million barrels per day of distillates.
US consumption is typically ~4 million barrels per day, so the country is facing a deficit ~300 000 barrels per day. So bottom line, the US won’t be ‘running out of diesel’ in 25 days, but stocks are very low in the New England states and total supply on hand will still be trending downwards for the foreseeable future unless US distillate exports get cut, imports go up, or US demand falls.
On the domestic production side, refiners are cranking it out right now but that won’t last because planned maintenance at refineries will cut into production: the nations biggest refinery, Port Arthur in Texas, is set to be down for maintenance and overhaul by January. That’s also assuming that no refineries will go boom over the coming winter or suffer from any other unforeseen production cutbacks.
As with just about everything in our high global consumption economy, we have a conundrum. Many conundrums in fact. We desire to reduce greenhouse gas emissions, but carbon based fuels are vital for maintaining the status quo which we also wish to maintain. Consumer goods are shipped by trucks which run on diesel. There is no substitute for this, so we either ship less or we provide more diesel fuel which increases greenhouse gas emissions. Shortages of diesel fuel increase prices which is bad for the current economy. We all wish to have our cake, and eat it too. That is not possible, yet we refuse to accept this. We can’t prevent global warming, ecosystems collapse, mass extinctions, etc…unless we drastically change the way we live. This will require sacrifice by all of us. This is a non-starter politically, so we get all these stories of energy-related doom and gloom. High natural gas prices, high gasoline prices, diesel fuel shortages, and so on.
I live in Austin, part-time in Greenbelt, MD and am rght now in RI- and southern New England is a place truckers hate to go.
The price of basic foods and especially produce are highest in RI, next highest in MD and cheapest in TX. And the difference seems to be growing. At least part of that is diesel for the trucks bringing food from the south. When I saw an 8 oz container of Kraft grated parmisan cheese for $4.49 two days ago I thought: “The Democrats may not have been entirely responsible for these prices, but they are doomed in this election.
I notice that the 1 gallon and 5 gallon plastic fuel containers are slowly but surely disappearing from the hardware store shelves. Those aren’t cheap these days, prob cause inputted product liability insurance cost into the price. A couple of the store proprietors say the can’t keep them in stock, they are going so fast.