Diesel shortage keeps fuel prices high at the pump

Retail prices for diesel were at $5.32 a gallon on Nov. 7, and have climbed 3.4 cents in the last week, according to data from GasBuddy. Prices have posted a decline of less than 9% from their record in June.

Shortages of diesel fuel around the globe and in the U.S. spurred the latest price advance, said Brian Milne, product manager, editor, and analyst at DTN. Milne refers to U.S. diesel fuel inventory as “extraordinarily low,” with supplies in the Northeast “critically low.”

A cold winter for consumers in the New England states, the region with the largest concentration of households that use heating oil, would be “very problematic,” said Milne. Diesel can be used in place of heating oil for furnaces.

Domestic supplies of distillates, which include diesel and heating oil, stand at 106.8 million barrels as of the week ended on Oct. 28. That’s 19% below the five-year average and the lowest level on record for this time of year, based on data going back to 1982, according to the Energy Information Administration.

Refineries have generally reduced capacity as a result of policy preferences for biofuels, and power demand is an “incremental demand driver for distillates because the world is super tight” on liquefied natural gas, said Craig Golinowski, managing partner at Carbon Infrastructure Partners.

U.S. retail gasoline prices, meanwhile, have dropped nearly 25% from their record high in June, while U.S. crude-oil prices have fallen around 25% from their year-to-date peak.

“The world finds itself with a reasonable supply of crude oil and gasoline, but some distinct problems with diesel, heating oil, jet fuel, and kerosene,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service, a Dow Jones company. The four products, as of late October, fetched prices of $150 to $200 a barrel, while crude-oil benchmarks are largely ranging from $85 to $100, he said, and of those four, diesel is the “most critical.”

Kloza estimates U.S. distillate demand at about 5.4 million barrels a day, and with domestic inventory around 106 million barrels, that is roughly just 19 days of supply.

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