U.S. Diesel Inventories Hit Historic Lows At The Worst Possible Time

Yves here. We’ve been warning for months about a coming diesel shortage. Now it is on the verge of materializing. Even though, in the US, this outcome is partly the result of limited refinery capacity (due to underinvestment in the face of more stringent environmental requirements), sanctions blowback is another contributor. Russian crude is heavier than US or Saudi and is particularly well suited for the production of diesel and heating oil; that’s the reason so many European passenger cars run on diesel. Remember when Biden went begging to Venezuela? Venezuela crude is heavy and sour. It would have taken some refinery tuning, but it could have been mixed with sweeter crude to produce diesel and heating fuels.

China relenting on its Zero Covid regime is likely to increase demand for oil and gas. Having said that, in the US, there have been signs of lower consumer demand for shipments, which ought to translate into lower trucking levels. But Christmas is still night, so it isn’t clear that the offset of (perhaps) less robust retail demand will alleviate the diesel squeeze. From CNBC in October:

A big decline in warehouse orders leaving storage and heading to retailers is another signal of the pullback in consumer demand.

According to the latest data from WarehouseQuote, outbound orders from customers shipping to retailers is down by one-third (-33%) year over year.

Jordan Brunk, CMO of WarehouseQuote, said with fewer products being moved out of warehouses to go into stores there will be less warehouse space available for incoming orders.

The fact that supplies are getting tighter, however, does not yet give a clue as to how bad price increases might get to be. Ultimately, high enough prices serve as a rationing device, even if that come in the form of colder homes. But if and when diesel prices rise, they will also show up in higher shipping and therefore end goods costs. Given the rapid inventory turnover, consumers will likely see the impact in grocery prices.

By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice

U.S. distillate stocks, which include diesel and heating oil, have slumped to their lowest level for this time of the year since 1951, just as the heating season starts and the EU embargo on Russian oil product imports kicks in in February.

Despite a small build in America’s distillate inventories last week, the levels are still at their lowest level since 1951, according to Financial Times estimates.

The historically low stocks have pushed diesel prices much higher than the smaller rises in gasoline and crude oil this year. Since diesel is the primary fuel of the economy and long-haul transportation, the high diesel prices continue to fuel inflation.

In the week ending November 11, distillate fuel inventories increased by 1.1 million barrels and are about 15% below the five-year average for this time of year, the EIA said in its weekly inventory report on Wednesday. At 107.4 million barrels, those stocks are the lowest ever seen for this season of the year.

“The bulk of the increase in distillate stocks was on the US East Coast. And while this is helpful, stocks in the region are still at their lowest levels on record for this time of year,” ING strategists said on Thursday, commenting on the EIA inventory data.

Very low diesel stockpiles and lower refining capacity since the pandemic have driven diesel prices in the United States higher to the point of reaching a record-high premium over gasoline and crude oil.

Going forward, the supply of diesel in the U.S. and globally is set to tighten even further with the EU embargoes on imports of Russian crude and products, starting in December and February, respectively.

“The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers,” International Energy Agency (IEA) said in its monthly report earlier this week.

“Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear,” said the agency, which sees stubbornly high diesel prices fueling inflation as well as slowing economies leading to a slight decline in global diesel demand in 2023.

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  1. jefemt

    Inflation is tamed by magikally stripping out volatile food and energy prices. Et Voila!

    So thankful (it’s the most wonderful time of the year…) we don’t eat energy!

    Trucking & rails use diesel, potential rail strike… supply chain falters in fits and starts…Russia and Ukraine…quite a coalescence of negative factors in the offing.

    1. Carla

      But we DO eat energy. Can’t get food without it. The inflation in grocery prices was already tough. Now it will be brutal. Merry Christmas!

      1. Wukchumni

        I gave away all of the year’s worth of stored food to our food bank (I always do this a few weeks before Thanksgiving…) and reloaded which was quite a shock as everything had been purchased a year and half prior.

        A good many items were subject to inflationary-deflationary measures in that the price went up quite a bit as the quantity fell a bit, an odd double whammy but there you have it.

        The country runs on diesel and all aspects from the first seed placed in the ground to eventual sale in a grocery store involves almost exclusively diesel fuel in order to make it so.

        If you have the wherewithal and probably more importantly the space to store a year’s worth of food, now is the time to pounce before our supermarkets resemble a Soviet one…

        …bereft happens

        1. MT_Wild

          I’m assuming you’re turning over mostly canned goods and condiments before they hit the labled expiration date?

          I’m relatively new to the food storage game so just curious. My understanding is that the dried grains and beans have a much longer storage life (10 years+?). The more perishable canned goods will be usable past the exp. date, but food banks wouldn’t accept them past that point.

          I like the idea of donating some as part of a planned rotation because we are fortunate enough to be able to restock.

          1. Wukchumni

            I think of it as an insurance policy that morphs into meals for others in the community…

            My food bank doesn’t really care about best by dates on canned food as long as they are within a year or so.

            No rusted or dented cans accepted.

            Your food bank may vary, contact them and see what’s what.

            Rice & beans only really have a shelf life of a few years, similar to canned goods.

            1. roxan

              When I moved, some of my food hoard got lost in storage (it’s a big garage!) and I had a chance to see what lasted. Basmati rice was OK even at 15 years, but I don’t know if it was still nutritious. Beans dried up and were tasteless. Oatmeal got rancid. Flour, sugar, cocoa, spices and oil were just fine as was dried milk and anything packed in oil, salt or sugar. These were all in sealed containers kept away from light, in an unheated building. Canned goods were generally fine although a few exploded, mostly soda, and I didn’t trust high acid foods. Meat and fish products I mostly fed to the cat who thought they were fine. It was an interesting accidental experiment!

        2. kareninca

          I have a bunch of Chunky Soup cans that expire in 2023. I am going to keep them for a while, for emergencies, since they actually contain meat. As you say, prices have gone up, and quantity has gone down, but quality has also taken a hit. From what I am reading, the more recent a soup can you buy, the more cornstarch it contains and the less meat. I don’t want to reload my supplies now and get a bunch of cans of meatless goop. I wonder what you would find out if you checked what you just bought, to see if the substance itself has changed.

          There are a couple of junk food items that I used to eat a few times a year as a treat. They are now inedible. The ingredients have changed; they have cheapened the ingredients. I literally can’t digest them now, and it’s not me; I can still eat actual food.

      2. Carla

        Lentil and rice stew for Christmas dinner, anyone? Maybe with a hard-boiled egg per person and a fresh apple for dessert for the well-off. Ironic that this would be healthier than 99 percent of the holiday menus most Americans usually enjoy…

      3. digi_owl

        Indeed. And why i get frustrated when people flippantly dismiss Malthus.

        Our modern factory farming is deeply dependent on fossil fuel. Not just to power the farm equipment, but also in the production of fertilizer.

        1. flora

          Malthus, per Wiki:

          Malthus saw population growth as inevitable whenever conditions improved, thereby precluding real progress towards a utopian society: “The power of population is indefinitely greater than the power in the earth to produce subsistence for man.”[4] As an Anglican cleric, he saw this situation as divinely imposed to teach virtuous behavior.[5] Malthus wrote that “the increase of population is necessarily limited by subsistence,” “population does invariably increase when the means of subsistence increase,” and “the superior power of population repress by moral restraint, vice, and misery.”
          The Malthusian answer to the problem of poor people is eliminating people, not poverty. We are carbon. / ;)

  2. Lex

    The Superior, WI refinery that suffered a fire like four years ago still isn’t fully back online. The Toledo, OH refinery suffered a serious fire earlier this year. Both of these are significant processors of the super heavy tar sand Canadian product due to the logistics of the pipeline network. That product can be moved south via Wisconsin to Chicago/Gary. But there’s not a great way to move it directly south to the OK-TX region. The Mainlines branch south from the IN connection, or they move east via the detroit/Toledo route, (often back into Canada) to transit to the US east.

    That tar sand product is the best stock for N American diesel, so the double refinery pinch in the Great Lakes region must be really problematic. Note: I’m pretty knowledgeable about pipeline transport but not very about refinery details.

    1. BeliTsari

      We’d started getting the dilute bitumen linepipe orders, after an absolute NIGHTMARE with the Lakehead orders, at a totally re-equipped “state-of-the-art” mill in Baton Rouge; with GREAT, experienced inspectors. I’d personally avoided ALL tar-sands orders, thereafter; being rabidly against the practice, and simply TERRIFIED of the new, Indian & Russian oilgarch owned, API5L mills, Azovstal slabs & skelp AND un-trained, precariate/ 1099, very frequently undocumented neophyte “hands” & largely untested, Chinese built copies of German single-stage SAWH (spiral, submurged-arc welders) WAY too vulnerable UT & RT, temp visual & inexperienced contract lab techs: NONE, unionized; most, exposed to ICE, skip chasers, PO, deputies, IRS, repo-men. I’m sorry, but it took no prescience on our part, to look for low yield, laminated, skelp full of centerline segregation, LF, missed edges, BT, bleed-through, hilarious off-seam… which NDE hands would be DEPORTED, or far WORSE, for reporting. It was right from 1870’s Pittsburgh, but with better food & music & crappier drugs & testicular fortitude.


      1. BeliTsari

        PHMSA would drive around in huge GMC SUVs, watch the planet’s most empirically experienced, talented & conscientious DJ (girth welders) TRY to weld +13/64″ to -7/64″ ends (BOTH, way out of API spec) while we rejected >30% on their inlet rack. We’d hide in the swamp at night to watch their US forepersons change stencils & found pipe from good mills, hidden in gondolas amidst the gators, hunting feral pigs; full of holes where test coupons were being furtively torched (daring us to report it!) Familiarity with pipelines, is sticking your fist into a lamination, noting 59 duplicate XR images, or spitting coffee on Hindi script, warning UT hands to ignore a burn-through & having an un-fused HAZ open in front of you & the excellent $6/ hr. Indian API 1104 welding engineer, who’s translated it for you. See, NC’s 1099, indentured contractor post? This got progressively WORSE, from Bill, to Shrub, through Obama!



      2. Lex

        Thanks for that link. I didn’t mean that the dilbit was the best product but that the heavy crude you get from tar sand oil is the best starting point for making diesel. I totally agree on the problems of dilbit in pipeline transport, as someone who sometimes works tangentially with pipeline integrity digs and more often than I’d like with pipeline spills. Given the age of much of the pipeline network, I’m not sure many people understand the risks. It also seems like different operators manage integrity monitoring very differently and that no matter how much integrity monitoring happens there are still breaks. Though since the Marshall spill I have noted that some operators have started doing a huge amount of integrity pigging.

        Your comments on new installation pipeline are terrifying. Knowing the little bit I do about refining, I’m not surprised that the dilbit is a nightmare and I wouldn’t be surprised if the refinery fires are possibly related to it. I don’t know what caused the fire in Toledo but I know that in superior an alky unit exploded (about 10 minutes after the maintenance crew left for break).

        1. BeliTsari

          It’s more than cranky old-timers decrying whippersnappers; since WE were trying our best to enable folks 1/3rd our age (most frequently, just back from US extractive wars; quite frequently, from India, Vietnam, Mexico, Guatemala (my favorite UT nerds) trying to get their folks in, devoid union protection & often 1099! I’d simply quit several 3rd party firms, who’d help clients buy up pipe, we’d rejected as out of conformance with 5L, their own additional requirements (we’d helped write) and especially API 1104 (ACP comes to mind?) The OLD Russian owned & new Indian mills are such a scary prospect for fracked methane & ethane (long-term: run-away AGW) but Dilbit bomb-trains & 42″ diameter helical-welded pipelines, from mills that think nothing of NDE techs, TERRIFIED to reject DEFECTS & killing 3 “hands” in a single week, with NO response, from TX OSHA… as we were threatened for calling the local paramedics without going through mill procedures. Who had to bring some pretty spectacular NDE techs over from India; then FIRED them to scare the others… who’d have guys working next to an 80′ 42″ diameter joint burst in Hydrotest (afraid of deportation), I’m in no hurry to live in Cancer Valley, Frackistan (my hometown) with Biden in office! Or Fetterman in the Senate

  3. Samuel Conner

    Things seem to have got to the point — $ per kWH energy equivalent from heating oil is comparable to the retail price of electricity — that if heating oil rises any further, one will be able to save $ on one’s heating oil bill by turning on the lights that one previously left off in daytime and in unoccupied rooms.

    It’s an incentive to up-scale one’s seed starting activities. The grow lights and heat mats can warm the room a little, in addition to accelerating plant growth.

  4. The Rev Kev

    Was just thinking about the availability of diesel for the farming community. I would not expect that much use this time of the year as you are going into winter there. But sooner or later, the first crops of next year will have to be planted and that is when those farmers are going to need a serious supply of diesel. And without crops being planted, you might be looking at food shortages next year.

    1. Lex

      Heavy planting of cool season crops is right now in the SW and parts of California. That’s somewhat different than the major grain producers but still mechanized.

  5. Tom Stone

    Diesel dropped to $6.89/Gallon in Sonoma County recently, it was well above $7 for a while.
    Will it hit $10 this winter?

  6. juno mas

    A friend of mine bought a diesel powered maxi-truck (four-wheel drive) last year. He lives 7 miles south of town (He’s Chief Lifeguard in SB). Says he fills up every 3 days. At a cost of $100. $200 bucks a week for just commuting to work!

    1. BeliTsari

      With Chinese PHEV, battery, semiconductor ALL being shorted/ crushed… German auto/ commercial and mass-transit transition to more efficient EV, hybrid, fuel-cell/ electric traction LRV & high-speed rail mysteriously all fucked-over (even more than efficient or autonomous Chinese & EU farm equipment) almost simultaneously. I wonder, cui bono?

  7. semper loquitur

    Question for a friend: does anyone have a breakdown of how much of the total supply of diesel is used by the various pieces of equipment that uses it? How much is used by trucks, by boats, by tractors? I poked around the Internet a bit but I couldn’t find anything so specific.

  8. semper loquitur

    I came across this bit of info, something that hadn’t occurred to me, our military is highly dependent on diesel:

    Uses of Diesel Oil

    Military Operations
    The U.S. military relies on diesel oil to power tanks, trucks and other vehicles at home and abroad. According to the EIA, diesel is less flammable and less likely to explode than traditional gasoline. Using diesel in military vehicles protects troops and personnel from injury and reduces the risk and intensity of fire or explosions during combat. Diesel-powered vehicles also offer a high level of reliability and are not as subject to stalling as a gasoline-powered vessel.


    1. chris

      Our beloved elites do so many things that create national security risks, while simultaneously abusing our military, it is a wonder the US hasn’t seen a military coup. Maybe that’s why they make sure all the generals have a golden retirement with speaking gigs and board memberships? Because if there weren’t generous contractor payouts waiting for them most of our congress critters would be in jail awaiting trial…

  9. Revenant

    Europe drives diesel cars because:
    – FIAT invented common rail diesel injection which radically improved performance, emissions etc. They licensed the entire industry and other European OEM’s did a lot of good work taming diesel vibration, exhaust stink etc for family life.
    – emission / efficiency mandates favoured diesel on a MPG, CO2 per mile basis
    – EU refinery crack split is very different to US, with a mixture of North Sea and ME crudes. I am not sure what contribution Russian oil made to the mix. Diesel was in structural oversupply and cheaper than petrol.

    Price, performance and pollution legislation favoured diesel until 2010’s, when the efficiency cheating scandal and legislation about PM10 and PM2.5 particulates killed the market for new diesel cars. A minor factor is that petrol hybrids are much easier to build than diesel (lightweight, bigger gains from running at constant revs). There are very few diesel hybrids on the market (which is a shame because it means there are no hybrid options for towing, vans, pickups).

  10. kareninca

    I mentioned this to my mom a few weeks ago; she lives in CT and heats with oil. She was not worried at all, since her heating oil company comes regularly to fill up her tank and she has a contract for a price for some time forward, and she even has a credit on her account. I pointed out that if there is a genuine shortage, then none of those things are sure to matter. But that made no impression on her. She does watch the local news but knew nothing of any of this, which makes me wonder how much press it is getting.

    She has loads of friends and almost all of them, like her, are ladies who live alone in a house. They are by no means rich (a few are poor), but their house is paid for and it would be more costly for them to live somewhere else and they are used to their house (also they are safer from covid this way, but that is not something they think about). They are widowed or divorced or never married, and they have three bedrooms and one and a half bathrooms. So there is a lot of potential for leaving the heat on in one place only as high as is needed to save the pipes and then doubling up. Or tripling up. From what I’ve seen in the past they’d rather freeze than do that, but it is an option.

  11. leapfrog

    While I realize diesel has commercial uses, I won’t be sorry to see the shortages for the coal-roller/smog detuned pickup truck recreational drivers. As an asthmatic with a reactive airway, I’m not really a fan of dirty diesel.

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