Serious decline in diesel supply threatens to exacerbate inflation


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Dangerously declining US and global diesel supplies are likely to increase fuel costs and exacerbate inflation, raising concerns as the cold weather months approach.


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“National distillate numbers are very low,” said Patrick de Haan, head of petroleum analysis at GasBuddy.

“It’s uncomfortable. It doesn’t mean you’re going to experience widespread outages, but if we get a bout of cold weather, things can be tough.”

Analysts say a combination of factors, which have been flowing for a long time below the surface, are now at their peak as cooler temperatures increase seasonal demand for diesel, a fuel that powers trucks and buses and is also used for heating.

“This is the start of the heating oil season. This is when demand really starts to pick up as the winter months come in,” said Debneel Choudary, head of refining and marketing research for North and Latin America at S&P Global Commodity Insights.

The country has about 25 days of diesel remaining, a level considered very low. De Haan said the country’s supply is usually closer to the “low to mid-30s” in terms of the number of days left.

Much of the state’s attention is focused on gasoline prices, which have fluctuated throughout the year. They have generally declined in recent months after a peak of $5 per gallon in June.

Gasoline and diesel are products made from oil, and oil prices rose after the Russian invasion of Ukraine.

The confluence of factors also strained diesel markets.

These factors include reduced refining capacity due to the pandemic, increased demand amid COVID-19 recovery, and Chinese export quotas, Chaudhry said.

“Demand for diesel came back much faster than other products. There are refineries that shut down all over the world so supply capacity is disrupted,” he said. “And then finally, China, which is the biggest exporter of diesel…was not able to export.”

“All these things combined have really reduced the world’s inventory,” he added, also referring to the recent increase in demand for jet fuel, which may have to compete with diesel at the refinery.

He added that the response to the Russian invasion of Ukraine also played a role in changing the course of the fuel trade as many European countries shun Russian products, leading to market inefficiency.

In addition to long-term refinery shutdowns, de Haan also highlighted some recent outages in the Midwest.

“The refinery fire in northwest Indiana and now… BP’s Toledo refinery shutdown, those are the refineries that produce a lot of diesel because they process a lot of heavy Canadian oil, so that doesn’t help the situation at all,” he said. .

Analysts say that this crisis is expected to be exacerbated by the continued rise in inflation rates that we have not seen in the past four decades. Higher diesel prices may increase shipping and heating costs.

Thus, rising diesel fuel costs affect everyone, as diesel prices affect manufacturing, transportation and direct heating costs. “As diesel prices rise, so do the costs of goods that are generally passed on to consumers,” Wood Mackenzie analyst Susan Danforth said in a written statement to The Hill.

This could also help push the country into recession, Danforth added, as higher prices could dampen demand for products.

“The rise in diesel prices has the potential to create stronger inflationary pressures, especially if the current rise in prices continues, adding significant downside risks to demand and increasing the chances of a global recession,” she said.

However, she also noted that if the economy slows, it could also help bring down diesel prices.

But the effects of heating costs may not affect Americans equally. Heating oil is most commonly used in the Northeast, and that area may be hardest hit by large utility bills.

The Biden administration, for its part, has sought to pressure the industry to increase diesel supply.

at recent days Interview with BloombergNational Economic Council Director Brian Daisy described stock levels as “unacceptably low” and called on the industry to increase its stockpile.

Energy Secretary Jennifer Granholm has called on industry to cut back on exports of “refined products,” which include diesel and gasoline, in recent weeks, saying supplies are in demand nationwide.

industry, however, have receded, Arguing that exports are important to maintaining global supplies, especially in light of the turmoil caused by the conflict in Ukraine.

The ExxonMobil CEO reportedly wrote to the Biden administration last month: “Reducing global supply by limiting US exports to build up region-specific inventories will only exacerbate global supply shortfalls.”

In general, Choudhury said, there are limited options to fix the problem.

“This is a difficult crisis to get out of,” he said.

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