Diesel fuel is in short supply as prices surge — Here’s what that
The prices for gas and diesel fuel, over $6.00 a gallon, are displayed at a petrol station in Los Angeles, March 2, 2022.
Frederic J. Brown | AFP | Getty Images
Diesel prices are surging, contributing to inflationary headwinds due to the fuel’s vital role in the American and global economy. Tankers, trains, trucks and planes all run on diesel. The fuel is also used across industries including farming, manufacturing, metals and mining.
“Diesel is the fuel that powers the economy,” said Patrick De Haan, head of petroleum analysis at GasBuddy. Higher prices are “certainly going to translate into more expensive goods,” he said, since these higher fuel costs will be passed along to consumers. “Especially at the grocery store, the hardware store, anywhere you shop.”
In other words, the impacts will be felt across the economy.
Diesel’s surge
The jump in prices comes on the heels of growing demand as economies around the world get back to business. This, in turn, has pushed inventories to historic lows. Products like diesel, heating oil and jet fuel are known as “middle distillates,” since they are made from the middle of the boiling range when oil is turned into products.
U.S. distillate inventory is now at the lowest level in more than decade. The move is even more extreme on the East Coast, where stockpiles are at the lowest since 1996. Diesel and jet fuel at New York harbor are now trading well above $200 per barrel, according to UBS.
Europe’s move away from dependency on Russian energy is hastening the rapid price appreciation. The bloc currently imports around 700,000 barrels per day of diesel from Russia, according to Stephen Brennock at brokerage PVM.
“[T]he tightness in global supply will be exacerbated by the EU’s proposal to ban Russian oil imports,” he said. “The ban, if approved, will have an outsized impact on product markets and especially diesel….There is now growing anxiety that Europe might run out of diesel.”
Energy consultancy Rystad echoed this point, saying that the loss of Russian refined products is going to make diesel shortages in Europe “more acute.”
Refiners can’t just ramp up output to meet surging demand, and utilization rates are already above 90%. In the U.S., refining capacity has decreased in recent years. The largest refining complex on the East Coast — Philadelphia Energy Solutions — shut down following a fire in June 2019.
Several refiners are now being reconfigured to make biofuel, which has also reduced capacity.
Some refiners are also undergoing routine maintenance checks that were overdue following the pandemic. These facilities typically run flat out – 24 hours a day, seven days a week – and so at some point the machinery needs to be checked.
The East Coast relies heavily on other areas of the country for refined products, De Haan said. Now, Europe is competing for these same fuels as it turns away from Russia.
‘Unmoored’ prices
A common saying in commodity markets…
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