Diesel is the lifeblood of the global economy. Trucks, trains, tractors, boats, barges, machines, and more all rely substantially on diesel and the US consumed about 34 billion gallons of it last year. It’s a casual statement we’ve repeated countless times in reports and news releases. With prices hitting record highs and concern about potential shortages, let’s take a closer look at the current situation, which factors are driving prices and inventories, and the outlook for lowering prices back down and increasing the supply.
Prices are rising. The national average for diesel is $5.31, down about 2 cents from last week, but up $1.59 from a year ago according to the Energy Information Administration (EIA). In California where prices are $6.25 a gallon; diesel prices are down about 7 cents from the previous week, but up $1.60 a gallon from a year ago. Basic economics drive fuel prices: higher demand and tighter supplies.
Inventories are low. The EIA notes that US inventories of distillate fuel oil have been below the five-year (2017–2021) low since the start of 2022 and more than 20% below the five-year average. Inventories are low due to refinery maintenance, lingering effects of the COVID pandemic, labor shortages, as well as slowed production.
We’re going into the winter demand season. This time of year is to diesel what the vacation driving season is to gasoline; a period of surging demand but with some new variables thrown in.
Harvest time is here, driving an uptick in demand for the off-road diesel fuel supply for farmers to power their combine harvesters, corn pickers, and other diesel-powered machines essential for getting product out of the field. This boost in demand for diesel then trickles down to transporting bulk grain, beans, corn, and other commodities to market via railroad, river barge, or truck. In 2020, the farm sector used about 3.6 billion gallons of distillate fuel oil
Home heating oil demand is about to rise. It is essentially #2 diesel fuel. The Northeast, which accounts for 85% of all US residential heating oil sales, used 2.6 billion gallons in 2020; that was about 5.3 million households. During a typical New England winter, a 2,500 square foot home might use about 5-7 gallons of heating oil each day. This competes with highway diesel fuel in the marketplace.
Refinery maintenance and reduced supplies remain a factor. Inventories of diesel fuel are low; no question about it. According to the EIA, distillate fuel supplies are the lowest since they started keeping records in 1951. Coming out of the pandemic, US refining has been seeking a return to normal cycles of production and maintenance. October had the most refinery maintenance in a while and, therefore, disrupted production more than in previous years.