Update on diesel shortage as US supply barely makes it through winter

After reporting the lowest stock since 2008, just as the peak demand season approached, US diesel supplies rose slightly in early November, although distillate fuel prices remained high.

When the Energy Information Administration (EIA) reported in mid-October that as of October 14, the country had 25.4 days of supply left in distillates – which include diesel, jet fuel and fuel oil – analysts and experts have begun to fear a supply shortage that could lead to a significant slowdown in the US and global economy.

In this combination photo, a driver unloads crude oil from his tanker to turn it into gas at the Marathon Refinery in Salt Lake City, Utah and an inset photo of Joe Biden. US diesel supplies increased slightly in early November.

But while fears have not fully dissipated, there has been some small progress in the country’s rebuilding of its dwindling stocks.

Patrick De Haan, Head of Petroleum Analysis at GasBuddy, said Newsweek“We saw distillate supplies increase slightly to 26.0 days, and inventories last week increased by around 400,000 barrels, while areas with the lowest inventories also saw a much-needed increase in supplies.”

Although the diesel shortage is affecting the whole country, stocks are particularly low on the east coast, with the northeast seeing the highest diesel prices, according to the main fuel supply and logistics company based in Georgia, Mansfield Energy. The Southeast reports the worst supply cuts.

A combination of strong demand and low inventories caused by dwindling capacity at U.S. refineries — many of which have closed since 2020 or been repurposed — and import bans on Russian petroleum products have caused the diesel shortage. This left farmers and homeowners struggling with a tough winter.

While rising inventories are certainly good news for the US economy, diesel prices remain high. The national average is $5.359 per gallon, lower than the Nov. 13 average of $5.362 per gallon but higher than last week’s average of $5.338 per gallon and October’s average of $5.215 per gallon, according to the American Automobile Association (AAA).

On June 19, 2022, diesel reached its highest average price at $5.816 per gallon.

“Transportation costs continue to rise due to tight supply, with average diesel prices hovering around $5.36 per gallon nationwide, but some regions are seeing diesel exceed $6 per gallon. “, said De Haan.

“I hope it could improve, but if the winter is cold, fuel oil, which is very similar to diesel, could experience higher consumption. We could winter, but barely.”

According to a Nov. 9 IEA update, heating oil prices rose at the start of winter, typically a season characterized by high demand for diesel, even though temperatures have been unusually mild.

Although the past six weeks have been warmer than average, “residential heating oil prices have been rising in recent weeks,” writes the EIA, reaching “a record high of $5.91 per gallon (gal) the week of 7 November (data back to 1 October 1990), adjusted for inflation.”

Fuel oil prices were highest in the central Atlantic region, with low supply and strong demand pushing prices up in the northeast.

It is the region that uses the most heating oil in the entire country, with the US Census Bureau’s 2020 American Community Survey (2021 estimates) revealing that about 18% of Northeast households and 33 % of New England households only use fuel oil as their primary fuel for space heating.

Despite the likely difficult future scenarios, De Haan believes there is no need to panic just yet.

“Refiners are working hard and doing their best to produce more,” he said. “If demand drops, we may have enough leeway for supply to increase.”

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