Diesel Fuel Settles (CONT’D FROM PAGE 26)
lack of refining capacity. In late 2022 the region had only 13 days’ supply of diesel, down from 26 a year earlier. One exception to the trend is the Gulf Coast with its robust re- fining capacity and limited requirement for home heating. In a perfectly fluid market one would expect dwindling inventories and growing demand to stimulate higher pro- duction at the world’s refineries. Yet there are roadblocks,
when many refineries have cut back production or closed. “We don’t have as much capacity to produce diesel fuel today as we did pre-pandemic,” said Schaeffer. “COVID caused a lot of layoffs at refineries around the world. It also caused a delay in the startup of new refining capacity which would have increased supply.” The U.S. possesses some specific additional drivers of fuel prices. “For the last few years, even before the Rus- sian crisis, diesel has sold at a premium to gasoline in the US,” said Williams-Derry. “One reason is higher federal and state taxation. Another is the shift to lower sulfur die- sel. That’s been very good for clean air but has also slight- ly increased the price of diesel relative to gasoline.” Low Inventories The fact that distillate inventory is running low around the world has only added to upward pricing pressure. “As economies have recovered, the supply of crude hasn’t kept up with demand,” said Lipow. “For all intents and pur- poses, diesel levels are the lowest they’d been since 1951. The world has been living on borrowed time if you will, by drawing down inventories.” Diesel supplies are tight in most of the regions of the U.S., noted Lipow. Nationally, inventory supply has been running at 25 days, down from its normal 30 to 35 day level. Of particular concern is the East Coast, a region with high population centers, high heating oil demands, and a
one of which is a carry-over from the worst days of the pandemic. “At the peak of the pandemic in 2020, diesel demand had gone down by 30 percent, and refineries were losing tons of money,” said Lipow. “At the same time, they were getting older. In the U.S. they were also facing more environmental restrictions, especially in California.”
CONTINUED ON PAGE 30
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28 December 12, 2022
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