GAINESVILLE, Ga. — The United States is experiencing many crises and the diesel crisis is no exception. During the past year, the country has been plagued with high fluctuating gas prices and now the U.S. has a shortage of diesel fuel.
Supply cannot keep up with the demand of the consumer. And as the cold months approach, Americans fear heating their homes will be very difficult this year.
Diesel fuel prices
Marketwatch.com reported the fuel resources that are used in freight and agriculture transport have fallen to the lowest levels for this period of year in a while. Since fuel supplies are low, this has increased prices at the pump by 8 percent according to data from GasBuddy.
Data from GasBuddy also shows that diesel fuel was at $5.32 a gallon Nov. 7 and has increased by 3.4 cents recently. However, there was a 9 percent decrease from the record high in June.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, a Dow Jones company said, “The world finds itself with a reasonable supply of crude oil and gasoline, but some distinct problems with diesel, heating oil, jet fuel, and kerosene. The four products, as of late October, fetched prices of $150 to $200 a barrel, while crude-oil benchmarks are largely ranging from $85 to $100, he said, and of those four, diesel is the “most critical.”
The U.S. Energy Information Administration anticipates that low quantities of diesel will lead to higher prices going into 2023. In the EIA’s November issue of “Short Term Energy Outlook” it was reported that the prices of diesel fuel will remain $5 higher for the rest of the year. Also, the price to heat one’s home will be 45 percent higher than last year’s winter.
Reasons for high diesel prices
USA TODAY reported the main reason for high diesel prices is supply and demand. Andrew Hunter, Capital Economics senior economist said, “Supply is constrained partly because Russian imports into the U.S. are banned but also because U.S. refining capacity has fallen over the past few years.”
As of Oct. 14, there were 106.2 million barrels of heating and diesel fuel, according to the EIA. That leaves a 26-day supply and is 20 percent less than the five-year average. Diesel fuel is very similar to heating fuel so the demand for heating oil is likely to increase.
“This is concerning,” said Patrick De Haan, head of petroleum analysis oil and refined products analyst at GasBuddy.com.
“Between now and the end of November, if we don’t build inventories, the wolf will be at the door, and it will look like a big ugly wolf if it’s a cold winter,” Kloza added.
Could diesel prices increase?
The American Automobile Association reported, diesel prices hit a record high in June reaching $5.816 per gallon. Kloza told USA TODAY, that the prices of fuel could increase due to the Russian-Ukrainian conflict especially if it “blows up.”
Most European countries get their oil supply from Russia. The EIA estimates that Russia will generate 9.3 million barrels of crude oil and other gasoline products in 2023. Russia decreased their production by 14 percent for 2023. Russia is a member of OPEC+ and they announced that they are going to cut crude oil productions in October. The EIA believes that the Russian-Ukrainian war is a major factor in the cuts to oil production.
EIA Administrator Joe DeCarolis said, “Russia faces significant and expanding sanctions following its invasion of Ukraine, and we expect those sanctions will have far more impact on Russia’s energy production than the planned OPEC+ production cuts.”
Joe DeLaura, senior energy strategist and executive director at Rabobank added that, “diesel is in a multidecade global inventory shortage.”
With the exception of China, the United States, Europe’s Amsterdam-Rotterdam-Antwerp hub, and Singapore, there are 132 million barrels as opposed to the 10-year average of 174 million barrels at three major storage sites.
According to DeLaura, China has lowered their exports and the U.S. is “shedding refining capacity.”
Demand is high and “inelastic” because of the U.S. recession because people still have needs, they must buy from the grocery store or Amazon. All of these items are “transported by the diesel economy.”
It is not only the United States feeling the sting of oil shortages, but also the rest of the world. Global inventories are at their lowest levels since 1982 and there were 3.5 billion less people in the world.
“There’s a real threat something in the energy chain will go parabolic, and I think generally, the worry is that something that goes parabolic is diesel and heating oil,” Kloza said.
He noted that the time to watch thoroughly is the heart of the winter season, from Dec. 15 to Feb. 15. There will be very high heating bills all around the country. Kloza approximates that homes in the Northeast will be paying thousands in bills. He said, “I would buy some sweaters.”
Can diesel prices be halted?
USA TODAY reported that analysts say that it is impossible to bring costs down.
“Globally, there’s not enough refining capacity,” De Haan said.
There are options to make diesel fuel from soybeans and other renewable sources, although, the best way is to refine crude oil. It is hard to stock oil because of the temporary shutdown of refineries due to maintenance.
“We are now forecasting the U.S. and global economies to fall into recession over the next few quarters so, it probably won’t be too long before we see easing demand start to take some of the heat out of diesel and crude oil prices,” Hunter said.
New England will be hit hard by the diesel crisis because this portion of the country uses the most heating oil. Brian Milne, product manager, editor, and analyst at DTN said, it will be “very problematic” for the New England states. Diesel can also be used for heating oil. Kloza claimed that the demand for fuel is about 5.4 million barrels a day, and with national supply at an estimated 107 million barrels. That leaves about 19 days’ worth of inventory.
Salem Abraham, president of Abraham Trading and portfolio manager of the Abraham Fortress fund said, the market “ration the demand for diesel with higher prices.” He added that if prices are as high as they are in a recession and at the end of pandemic, “imagine what things look like in 12 to 24 months when we are past all of that and demand increases.”
During October, the U.S. fuel levels ended at their lowest rate since 1951.
“Inventories are just one part of the supply equation for diesel and other distillates,” DeCarolis said. “The distillate fuels in storage aren’t the only source of diesel we have to keep trucks and trains moving, but lower-than-average storage levels will contribute to higher costs for diesel and for heating fuels through the winter.”
Home heating costs on the rise
The National Oceanic and Atmospheric Administration (NOAA) said that they are anticipating a cold winter for the United States. If a cold winter is to come, this will make heating costs rise. According to the EIA, families will spend 28 percent more than the previous year on natural gas, 27 percent more for heating oil, 10 percent more for electricity and 5 percent more for propane.
“Forecasting months-long weather and energy trends is not an exact science, but it’s highly likely that global dynamics affecting energy commodities will lead to higher U.S. prices for heat this winter,” DeCarolis said.
Diesel fuel is used in high quantities in agriculture. Diesel fuel powers 75 percent of farm tools, and powers 90 percent of transportation to carry agriculture products and it powers 20 percent of the pumps that carries water all across the United States.
Also, 96 percent of all the semi-trucks that transport agriculture products have diesel engines. Diesel engines are installed in trains and marine vessels to transport grains.
For agriculture, there are not any replacements for diesel engines. The engines are used in planting crops, nurturing crops, picking crops, and getting the crops to grocery stores for purchase.
Increased production costs will ultimately lead to higher prices at the store.