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Robert Rapier

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Four Reasons Why The U.S. Is Grappling With A Diesel Shortage

  • Distillate levels in the United States have plummeted to the lowest levels since 2008.
  • Low distillate inventories have sent diesel prices soaring. 
  • Four primary factors lead to this shortage.

Last week, the Energy Information Administration (EIA) reported that distillate inventories were at their lowest levels since 2008. (The primary distillates are diesel, jet fuel ,and heating oil). However, in 2008 distillate levels were low coming out of spring. Currently, they are low going into fall. That’s far worse than the situation in 2008.

Distillate demand generally spikes in spring — when farmers are planting crops — and in fall, when they are harvesting those crops and people start buying fuel oil for winter. Thus, a low distillate inventory in late April 2008 isn’t quite as serious as a low inventory in October 2022. In fact, distillate inventories haven’t been this low in October since the EIA began reporting this data in 1982.

These low distillate inventories are why diesel prices are above $5.00 a gallon nationwide, even though the nationwide average price for gasoline has dropped below $4.00 a gallon.

Why is there a diesel shortage this year? There are four factors, but two of those factors are in play every year.

As mentioned above, distillate demand spikes at this time of year. But, it does that every year.

This is also the time of year that refineries are doing maintenance. They tend to do that in the spring and fall, which is when demand is lower and the weather is decent. So, refinery capacity drops at this time of year.

Third, U.S. refinery capacity has fallen in the past few years as several unprofitable refineries were closed. So, that’s a new factor that has appeared in the past couple of years.

Related: Maersk Reports Record Profits But Warns Of Challenges Ahead

But the primary reason is the cutoff of Russian imports. Prior to Russia’s invasion of Ukraine, the U.S. was importing nearly 700,000 barrels per day (BPD) of petroleum and petroleum products. Most of those imports were finished products and refinery inputs that boosted distillate supplies in the U.S.

The loss of those Russian imports have caused problems for refineries as they struggle to fill holes in their product slates. Refineries do have a small amount of flexibility in shifting gasoline production to diesel production. But it’s a relatively small amount (e.g., ~5% in a refinery I once worked in). That also means that if refiners do shift production, that also potentially creates shortages in the gasoline market.

Some relief is on the way, as some diesel imports are on the way from Europe to the East Coast. But, the distillate market won’t likely return to normal before next summer at the earliest.

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By Robert Rapier

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Leave a comment
  • George Doolittle on November 05 2022 said:
    Long $ibm International Business Machines
    Strong buy
  • John Knox on November 07 2022 said:
    These are the four reasons:

    1) Biden
    2) Biden
    3) Biden
    4) Biden
  • Matt Schilling on November 09 2022 said:
    We can make pristine clean diesel from coal. While the recipe and process is old and proven, two gentlemen won a Nobel prize in 2005 for showing how to greatly improve the process. That's more than enough time for innovation to go from the lab to the plant floor.

    The new Republican Congress should command its military to meet its diesel needs from diesel made from domestic coal. This would be similar to Congress purchasing ships and jets that weren't requested by a branch of the armed forces. It happens virtually every year.

    Making real strides to meeting the world's #1 consumer of diesel's needs from coal would be a game changer!
  • Rich Button on November 10 2022 said:
    This is Bidens energy policy which is exacerbated by Putin's war. The main reason is mentioned above but is light on analysis. Refineries are the issue. Although maintenance occurs, oil companies are not dumping a lot of money into maintenance due to Biden regulations and goal of eliminating them. There also are refineries still shut down due to the pandemic and at least 2 scheduled to shut down. So this is not going to get better. In fact, it is going to get worse. We wont run out of fuel but supply is going to be short and prices will consequently rise.

    But heyt, we'll be a third world country under democrat rule but at least polar bears will be good.

Leave a comment




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