‘Extraordinarily low’ US diesel supply and ‘inelastic’ demand keep fuel prices high at the pump

By Myra P. Saefong

US diesel supplies have fallen to their lowest level on record for this time of year

Gasoline prices have started to dampen, but diesel has been full steam ahead, with US supplies of fuel used in freight transportation and agriculture falling to their lowest level on record for this time of year. .

That kept diesel prices at the U.S. pump steady, with a gain of more than 8% in October, even though gasoline prices were little changed last month, according to GasBuddy data.

Retail diesel prices were $5.32 a gallon on Nov. 7 and climbed 3.4 cents last week, according to GasBuddy data. Prices were down less than 9% from their June high.

Diesel fuel shortages around the world and in the United States spurred the latest price hike, said Brian Milne, chief product officer, editor and analyst at DTN. Milne calls U.S. diesel fuel inventories “extraordinarily low,” with supplies in the northeast “extremely low.”

A cold winter for consumers in New England states, the region with the highest concentration of households using fuel oil, would be “very problematic,” Milne said. Diesel can be used instead of fuel oil for furnaces.

Domestic distillate supplies, which include diesel and fuel oil, stood at 106.8 million barrels at the end of the week of October 28. That’s 19% below the five-year average and the lowest level on record for this time of year, based on data dating back to 1982, according to the Energy Information Administration.

Refineries have generally reduced capacity due to political preferences for biofuels, and electricity demand is an “additional demand driver for distillates because the world is super tight” on liquefied natural gas, Craig Golinowski said. , Managing Partner at Carbon Infrastructure Partners.

U.S. retail gasoline prices, meanwhile, fell nearly 25% from their June high, while U.S. crude oil prices fell about 25%. % from their peak since the beginning of the year.

“The world is left with a reasonable supply of crude oil and gasoline, but some distinct issues with diesel, heating oil, jet fuel and kerosene,” said Tom Kloza, global energy analysis manager at Oil Price Information. Service, a Dow Jones Company. The four products, at the end of October, reached prices of $150 to $200 a barrel, while crude oil benchmarks ranged widely from $85 to $100, he said, and of these four, diesel is the ” more critical”.

Kloza estimates U.S. demand for distillates at around 5.4 million barrels per day, and with a nationwide inventory of around 106 million barrels, that’s around 19 days of supply.

Global “multi-decade” stock shortage

Joe DeLaura, senior energy strategist and chief executive of Rabobank, said “diesel has been experiencing a global shortage of inventory for several decades.” Diesel inventories at three main storage hubs outside China – the United States, European hub Amsterdam-Rotterdam-Antwerp and Singapore – stand at 132 million barrels, he said, compared to a ten-year average of 174 million.

Supply has been reduced as China has kept its export quotas low all year and the United States is “giving up refining capacity,” DeLaura said. Demand, however, is relatively strong and ‘inelastic’, given that even in a recession people will still buy groceries and have them delivered by Amazon, all of which are ‘driven by the diesel economy’ .

Salem Abraham, chairman of Abraham Trading, meanwhile said that “a price will be paid for the lack of investment in new drilling and new refineries”.

The market needs to “ration diesel demand with higher prices,” said Abraham, who is also portfolio manager of the Abraham Fortress fund. If oil, natural gas and diesel prices are high in a recession at the end of a pandemic, as some believe, “imagine what things will look like in 12 [to] 24 months when we have passed all that and the demand increases.”

Some signs of improving supply

For now, diesel supply in the United States has shown signs of improvement.

Patrick De Haan, head of oil analysis at GasBuddy, said on Monday that while domestic diesel supply remained tight, it had increased slightly in the past week.

The EIA reported a 400,000 barrel increase in U.S. distillate inventories for the week ended Oct. 28.

“The majority of stations, particularly away from the east coast and northeast, should have very few diesel supply issues, although some stations in these areas may see diesel delivery times slipping,” he said. said DeHaan.

“Brief outages at a limited number of stations are possible, but with refineries continuing to produce product and maintenance winding down, I am optimistic the situation will improve,” he said.

-Myra P. Saefong


(END) Dow Jones Newswire

11-07-22 1102ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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