Diesel, world’s most crucial fuel, heads for shortage
NEW YORK: No fuel is more essential to the global economy than diesel. It powers trucks, buses, ships and trains. It drives machinery for construction, manufacturing and farming. It’s burned for heating homes. And with the high price of natural gas, in some places it’s also being used to generate power.
Within the next few months, almost every region on the planet will face the danger of a diesel shortage at a time when supply crunches in nearly all the world’s energy markets have worsened inflation and stifled growth.
The toll could be enormous, feeding through into everything from the price of a Thanksgiving turkey to consumer bills for heating homes this winter. In the US alone, the surging diesel cost will mean a $100 billion hit to the economy, according to Mark Finley, an energy fellow at Rice University’s Baker Institute of Public Policy.
“Anything and everything that gets moved in our economy, diesel is there,” Finley said. “Moving stuff around is one thing. People potentially freezing to death is another.”
In the US, stockpiles of diesel and heating oil are at their lowest point ever for this time of year in data going back four decades.
Northwest Europe is also facing a low buffer — inventories are forecast to hit a low this month and then tumble even more by March, shortly after sanctions come into play that will cut the region off from Russian seaborne supplies. Global export markets have gotten so tight that poorer countries like Pakistan are getting shut out, with suppliers failing to book enough cargoes to meet the nation’s domestic needs.
“It’s certainly the biggest diesel crisis that I have ever seen,” said Dario Scaffardi, the former chief executive officer of the Italian oil refiner Saras SpA who’s spent almost 40 years in the industry.
Diesel in the spot market of New York harbor, a key benchmark, is up roughly 50% this year. The price reached $4.90 a gallon in early November, about double year-ago levels.
Even more telling is the premium that diesel is commanding. Spreads for the fuel are widening both against crude oil, a sign of how tight refining capacity is, and in relation to supplies that are for later delivery, underscoring that traders are desperate to get their hands on the stuff now.
In northwest Europe, diesel futures cost about $40 a barrel more than Brent, versus a fiveyear seasonal norm of just $12. New York diesel futures for December delivery are trading about 12 cents higher than those for January. That compares with a premium of less than a cent at this time last year.
There are major constraints globally on refining capacity. Supplies of crude oil are already fairly tight. But the bottleneck is much more acute when it comes to turning that raw commodity into fuels like diesel and gasoline. That’s partly a function of the pandemic, after lockdowns destroyed demand and forced refiners to close some of their least profitable plants. But the looming transition away from fossil fuels has also dented investments in the sector.
Since 2020, US refining capacity has shrunk by more than 1 million barrels per day. Meanwhile in Europe, shipping disruptions and worker strikes have also eaten into refinery production.
Things could get much more dramatic with the European Union’s looming pivot away from Russian supply. Europe relies more heavily on diesel than any other in the world. Roughly 500 million barrels a year get delivered by ship, with around half of that typically loaded at Russian ports, according to data from Vortexa Ltd.