Analysts dispute diesel shortage
While stockpiles of distillate fuels (diesel and heating oil) are low, the country is not going to suddenly run out of diesel fuel, despite reports of a diesel shortage driven by widespread misunderstanding of a government statistic, according to industry officials.
However, what those low stocks do mean is higher diesel prices, especially in the Northeast where stocks are the lowest and diesel faces competition from fuel oil. On a normal day, the East Coast markets have 50 million barrels in storage, but right now, there are less than 25 million barrels available.
U.S. Energy Information Administration (EIA) data for the week ended Oct. 21 showed the U.S. had 25.9 days’ worth of supply of diesel fuel. But that would only happen if U.S. refineries stopped producing distillates completely and the nation stopped all imports from other countries. It’s calculated by taking U.S. inventory and dividing it by daily demand.
Patrick De Haan at GasBuddyGuy, said this number is a measurement of supply and demand, and that it’s “a sign that refiners are having a hard time keeping up because that number is usually 33 days, and has dropped to historically low numbers. If refiners can outpace demand, the number will only slowly rise… but again, this number does not mean outages are imminent.”
Low Distillate Stocks
Looking specifically at the ultra-low sulfur diesel used in on-highway trucks and buses, stocks were about 95 million gallons for the weeks ending Oct. 14 and Oct. 21, according to EIA. This was down from 106.6 million in mid-September. The last time it was in this territory was late April and early May. Before this year, however, November 2014 was the last time ULSD stocks dipped below 100,000, records show.
There are several factors at play in the low distillate stocks:
- Fall is a time when refineries typically do maintenance. Tom Kloza with the Oil Price Information Service told CNBC, “October had the most refinery maintenance in the United States probably in a number of years.”
- S. refinery capacity has fallen in the past few years as some unprofitable refineries were closed.
- The cutoff of Russian oil imports. According to Forbes, before Russia’s invasion of Ukraine, the U.S. was importing nearly 700,000 barrels per day of petroleum and petroleum products. Most of those imports were finished products and refinery inputs that boosted distillate supplies in the U.S, according to Forbes.
“Refineries do have a small amount of flexibility in shifting gasoline production to diesel production,” wrote Forbes’ Robert Rapier. “But it’s a relatively small amount.”
Some ocean tankers carrying diesel to Europe have been re-routed to the U.S., according to Reuters.
At the same time, there is increased demand for diesel because Mississippi River drought is forcing barge freight onto trucks. In the Northeast, the demand for heating oil is growing as that region moves into the winter months.
In its Oct. 12 Short-Term Energy Outlook, the EIA forecast that average household expenditures for home heating fuels would increase this winter because of both higher expected fuel costs and higher energy consumption due to colder temperatures. Compared with last winter, it predicts heating oil prices will rise by 27 percent from October to March.
Tom Kloza of the Oil Price Information Service told CNBC: “I think the fact that we got this warning signal at the end of October and beginning of November helps. There’s tremendous profit motive out there to get refineries back up and running.”
With that motive, Kloza said the situation likely would improve in November.
“Once you get to December and January, there’s really no difference between the molecules in heating oil and diesel and then you might be sending a bunch of diesel to be burned up in the chimneys of homeowners in New England.”
All this means higher diesel prices aren’t likely to go away anytime soon, Kloza said. Diesel prices are averaging more than $1.50 higher than gasoline at the pump and many expect the price of diesel to go higher.
As of the EIA’s Oct. 31 report, gasoline prices averaged $3.742 per gallon nationally, 35 cents higher than a year ago. But the national average for a gallon of diesel was $5.317, $1.59 higher than a year ago.
Both dropped a few cents from the previous week.
Short-Term Regional Shortages
It is possible that some short-term regional shortages of fuel could occur, according to Alan Apthorp of Mansfield Energy.
“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,’’ Apthorp said. “Those shortages will drive up prices, which will make it economical to long-haul product from surrounding markets that do have supply. The fuel will be delivered but at higher costs.’’
In addition, governments can act to help expedite the transport of fuel. For instance, the governor of South Dakota recently issued an emergency waiver of hours-of-service rules for truckers transporting fuel.
(from HDT Trucking Info)