While Everyone Is Concerned About Gas Prices, Diesel Drives Inflation More Than Anyone Thinks

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Refinery issues

Analysts generally believe diesel is more affordable than gasoline during this time of the year. Analysts believe that diesel could be in short supply.

“On the margin, it is a very tight oil complex at the moment. Kurt Barrow from S&P Global Commodity Insights, vice president of oil and downstream, said that part of the reason for this is the tight supply of diesel fuel and the refining system. Due to the Covid low-demand period and the energy transition, we had significant refinery shutdowns.”

Barrow stated that the global refining industry has lost 3.5 million barrels per day of its refining capacity since pre-Covid levels. There are about 1 million barrels per day in the United States and another 0.6million barrels in Europe.

Diesel supplies have been tightened since the economic recovery.

Barrow stated, “When you take 600,000.00 barrels per day of Russian exports from a tight market that’s what adds to the pressure,”

S&P Global estimates that the United States consumed approximately 9.3 million barrels per day of gasoline in 2019 and another 4.1 million barrels of diesel fuel. The mix for Europe was very different. The gasoline consumption was only 2.1 million barrels per day, compared to 6.8 million barrels per day for diesel fuel.

High prices are not the only solution.

According to the Energy Information Administration, the US diesel demand has fallen to 3.8 million barrels per day over the past week from 4.5 million a week earlier.

John Kilduff of Again Capital said, “It’s an enormous drop in diesel fuel need.” “Five to six dollars will do that.”

According to AAA, the national average price for diesel is $5.12 per gallon. However, California’s average pump price is $6.44. Diesel costs an average of $5.34 per gallon in New York; $5.17 per gallon in Florida, and $4.86 in Texas.

Kilduff stated that there might be more relief in the future.

He said that U.S. refiners have increased operating rates to 92%, which is much higher than last year. Refineries have the ability to alter the fuel mix they produce and increase their diesel production.

Refining is complicated, however.

Covid lockdowns of 2020 caused a sharp drop and imbalance in oil and fuel demand. The refinery industry initially responded to sudden shutdowns, then increased as demand grew. Two U.S. refineries are currently transitioning to becoming biofuel facilities.

Kloza stated that this is a “gap year” for global refiners. “North America has seen about 1.2 million barrels per day of refinery shut down since the time Covid was introduced.”

He said that refineries in California and Wyoming, North Dakota, Wyoming, and Newfoundland were among those in the processor in the planning stages of being recycled to make sustainable aviation fuels and renewable diesel.

Kloza stated that there will be relief in the next year as huge new refineries are built in the Middle East and Southeast Asia. He said that these refineries were designed to maximize fuel yields, including jet fuel and diesel.

The U.S. has a very low level of diesel storage

Kilduff stated that diesel stocks had declined over the past year and a half, falling by almost 70 million barrels to the lowest level since 2014. “There are only 112 million barrels left of diesel fuel storage, as opposed to 141 million last year.”

Kilduff said that inventories are now 20% lower than the five-year pre-pandemic average.

Blanch stated that the current shortage in diesel is so severe that the reserves are almost depleted. “And that could lead to gasoline because everyone will be maximizing diesel runs.”