- As Americans reel from gas pump stickers, the diesel market is going through its worst crisis since the 1970s, analysts say.
- Prices for diesel, which powers much of the country’s industry, have jumped 76.5% over the past year.
- “The markets are telling us there is a shortage. This is a tailwind for inflation. We are demanding more diesel than anyone can supply.”
As Americans reel from gas pump stickers, the diesel market is going through its worst crisis since the 1970s, analysts say.
Commodity powers much of the economy, including large trucks, agricultural equipment and industrial machinery. Prices hit a record high of $5.56 per gallon in the United States, up 76.5% from a year ago.
“The markets are telling us there’s a shortage,” Jim Mitchell, head of Americas oil analysts at Refinitiv, told Insider. “It’s a tailwind for inflation. We’re demanding more diesel than anyone can supply.”
In fact, supplies have dwindled. Nationally, inventories of the most commonly used diesel have fallen 43% since 2020 to their lowest level since 2014. In the Central Atlantic region, inventories have fallen 78% since 2020 to their lowest level in a decade. The other categories of diesel are experiencing more pronounced declines.
And in New York, the situation is so dire that refinery and fuel magnate John Catsimatidis told Bloomberg, “I wouldn’t be surprised to see diesel being rationed on the East Coast this summer.”
Conditions are worse around the world. In Europe, diesel prices soared by 88%. The International Energy Agency said on Thursday that global stocks of refined oil, including diesel, have fallen to extremely low levels and shortages are already limiting transportation in various African countries as well as in Yemen, the United Kingdom. Sri Lanka and Mexico.
“There has been significant demand due to the opening up of domestic and global economies,” Rob Thummell, managing director of Tortoise Capital, told Insider. “With supply not being able to meet the high demand, we haven’t seen anything like this in decades, since the 70’s.”
At the time, motorists formed long queues at gas stations to fill up on designated days, as strict rationing was used in response to the OPEC oil embargo. Refinitiv’s Mitchell doesn’t anticipate the government ordering fuel rationing now, but he noted that high prices are one of the ways the market relieves demand.
Still, the upcoming summer driving season will further boost demand, he added. And the waning pandemic measures lead companies to reorganize their operations which now require greater energy consumption.
“There’s this huge increase in business activity, and the fuel for business activity is diesel,” Mitchell said.
Global diesel market
On the supply side, some refineries were shut down when demand was lower, meaning that even when oil companies pump more crude, the remaining refineries cannot produce more diesel at the same rate.
Additionally, some diesel-producing regions like California have been working to convert refineries to biodiesel hubs, which is “fantastic for the future but a problem right now,” according to Mitchell.
US diesel supplies are also going overseas, including to places like Mexico, Colombia, Brazil, Ecuador, he added.
The war in Ukraine is also tightening diesel availability, Thummell explained, as Russian refiners are not pushing supplies to the European market due to bans and self-sanctions. According to Vortexa data compiled by Bloomberg, Russia’s Baltic and Black Sea ports carried 3.32 million tonnes of diesel in April, down 14% from February.
Diesel is now so expensive it’s meeting demand, what Mitchell calls “price rationing.” This could help bring prices down. “But unfortunately, it also corresponds to moving towards a
The end of the war in Ukraine could also cool prices. But if the EU imposes an embargo on Russian oil, the diesel crisis could persist or worsen, with repercussions that could extend to all sectors.
“We see at least two years of higher food prices via agriculture and limited refining capacity globally and in the United States,” Mitchell said. “And we still demand more diesel than anyone can supply.”