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Diesel fuel is in short supply as prices surge — Here’s what that means for inflation

"stockmule, Why is Diesel Fuel More Expensive Than Gasoline?"

Published Sat, May 7 20227:49 AM EDTUpdated Sat, May 7 20221:09 PM EDT

Pippa Stevens @PippaStevens13

Key Points

* Diesel fuel is in short supply as demand rebounds following the pandemic, while supply remains tight.

* Prices have surged to record levels, adding to inflationary concerns across the economy.

*The problem is especially acute on the East Coast, where prices have become “unhinged,” according to one analyst.

* Higher prices are “certainly going to translate into more expensive goods,” said GasBuddy’s Patrick De Haan.


The prices for gas and diesel fuel, over $6.00 a gallon, are displayed at a petrol
station in Los Angeles, March 2, 2022. Frederic J. Brown | AFP | Getty Images

Diesel prices are surging, contributing to inflationary headwinds due to the fuel’s vital role in the American and global economy. Tankers, trains and trucks all run on diesel. The fuel is also used across industries including farming, manufacturing, metals and mining.

“Diesel is the fuel that powers the economy,” said Patrick De Haan, head of petroleum analysis at GasBuddy. Higher prices are “certainly going to translate into more expensive goods,” he said, since these higher fuel costs will be passed along to consumers. “Especially at the grocery store, the hardware store, anywhere you shop.”

In other words, the impacts will be felt across the economy.

Diesel’s surge

The jump in prices comes on the heels of growing demand as economies around the world get back to business. This, in turn, has pushed inventories to historic lows. Products like diesel, heating oil and jet fuel are known as “middle distillates,” since they are made from the middle of the boiling range when oil is turned into products.

U.S. distillate inventory is now at the lowest level in more than decade. The move is even more extreme on the East Coast, where stockpiles are at the lowest since 1996. Diesel and jet fuel at New York harbor are now trading well above $200 per barrel, according to UBS.

Europe’s move away from dependency on Russian energy is hastening the rapid price appreciation. The bloc currently imports around 700,000 barrels per day of diesel from Russia, according to Stephen Brennock at brokerage PVM.

?[T]he tightness in global supply will be exacerbated by the EU’s proposal to ban Russian oil imports,” he said. “The ban, if approved, will have an outsized impact on product markets and especially diesel….There is now growing anxiety that Europe might run out of diesel.”



Energy consultancy Rystad echoed this point, saying that the loss of Russian refined products is going to make diesel shortages in Europe “more acute.”

Refiners can’t just ramp up output to meet surging demand, and utilization rates are already above 90%. In the U.S., refining capacity has decreased in recent years. The largest refining complex on the East Coast — Philadelphia Energy Solutions — shut down following a fire in June 2019.

Several refiners are now being reconfigured to make biofuel, which has also reduced capacity.

Some refiners are also undergoing routine maintenance checks that were overdue following the pandemic. These facilities typically run flat out – 24 hours a day, seven days a week – and so at some point the machinery needs to be checked.

The East Coast relies heavily on other areas of the country for refined products, De Haan said. Now, Europe is competing for these same fuels as it turns away from Russia.

‘Unmoored’ prices

A common saying in commodity markets is “the cure for high prices is high prices.” But that might not be the case this time around. According to UBS, distillate demand tends to be less elastic than gasoline prices.

In other words, while high prices at the pump might deter consumers, if a business needs to get goods from point A to point B, it’s going to pay those higher prices.

Tom Kloza, head of global energy research at OPIS, said that in years past a barrel of diesel typically sold for $10 above the price of crude oil. Today, that differential – known as the crack spread – has surged to a record high above $70.

“It’s become untethered, unmoored, a little bit unhinged. These are prices we’re not used to seeing,” he said, adding that there are large price differences across the U.S.

Kloza said diesel at New York harbor is now trading around $5 per gallon, while jet fuel prices at the harbor, which usually mirrors diesel prices, are around $6.72. That equates to roughly $282 per barrel.

“These are numbers that are not just off the charts. They’re off the walls, out of the building, and maybe out of the solar system,” he said.

Retail diesel prices are also surging. On Friday the national average for a gallon hit a record of $5.51, according to AAA, after hitting a new high every single day over the last week.

Higher diesel prices is translating to higher profit margins for refiners, who are now incentivized to make as much as they possibly can. At a certain point, this could lead to tightness in the gasoline market, pushing up the high prices consumers are already seeing at the pump.

In the meantime, consumers can expect prices for goods to keep on climbing.

“It’s going to be a double whammy on consumers in the weeks and months ahead as these diesel prices trickle down to the cost of goods — another piece of inflation that’s going to hit consumers,” GasBuddy’s De Haan said, adding that the full impact of the recent surge in prices has yet to be felt.

https://www.cnbc.com/2022/05/07/diesel-fuel-is-in-short-supply-as-prices-surge-heres-what-that-means-for-inflation.html

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How to know when oil prices will cause a recession, and what to invest in

Published Sun, Mar 6 202211:47 AM ESTUpdated Mon, Mar 7 202211:04 PM EST

Eric Rosenbaum @erprose

VIDEO0 4:53 - How the price of crude oil can trigger a recession

Key Points

* Warren Buffett’s Berkshire Hathaway revealed a $5 billion stake in Occidental Petroleum and doubled down on its investment in Chevron, according to recent filings.

* Oil prices are nearing a 100% gain year-over-year and gasoline prices in the U.S. reached over $4 and the highest level since 2008, with huge single-day spikes caused by Russia’s invasion of Ukraine adding to existing energy inflation.

* In recent cycles when oil gained 100% in a one-year period, including 2008, a recession occurred. While that would hit crude prices and the stock market hard, there is still a case to be made for energy stocks given how diminished the presence of the sector has become in the S&P 500, at under 4%.

With the national average for a gallon of gas .. https://www.cnbc.com/2022/03/06/national-average-for-a-gallon-of-gas-tops-4-the-highest-price-at-the-pump-since-2008.html .. hitting its highest price since 2008 and the stock market on edge with the first land war in Europe since WWII being waged by one of the world’s biggest crude oil producers, crude oil prices and energy stocks are an area of focus for investors. It is hard for stock market participants to avoid the question, are energy stocks, which have had a huge run since the pandemic bottom, still a buy given the geopolitical premium? But the related question could stop them in their tracks before continuing: will oil prices cause a recession?

Bespoke noted last week that as of Friday morning, WTI crude oil was up just over 20% within the week, one of five periods where crude rallied more than 20% in a week. It noted that three of the prior four periods where prices spiked occurred during recessions.

Rystad Energy, one of the top global energy sector consulting and research firms, expects a plunge in Russian oil exports of as much as 1 million barrels per day — and limited Middle Eastern spare capacity to replace these supplies — to result in a net impact that oil prices are likely to continue to climb, potentially beyond $130 .. https://pages.rystadenergy.com/Rystad-Energy-Russia-Invasion-Ukraine-Report-March-2022 .. per barrel, and relief measures such as releases from the Strategic Petroleum Reserve can’t make up the difference.

There is of course disagreement and contrarian takes. Citi’s commodities team wrote last week it is becoming “probable” that oil prices have peaked already or could soon consolidate near a top. But that would require a de-escalation in the Russia invasion of Ukraine and progress on Iran talks. U.S. inventories are at or near lows, but Citi says stock builds are on the way in 2Q'22.

[...]

A big caveat: the evidence isn’t deep. “Recessions don’t come along that often, so we’re talking three periods since 1990,” Colas said.

Other market analysis argues that this is not the 1970s, and oil represents a much smaller part of GDP and economic consumption than it did then. A JPMorgan analysis from last fall made the case that equity markets would hold up .. https://twitter.com/carlquintanilla/status/1500121704621817866 .. in an environment even with oil prices as high as $130 to $150.

https://www.cnbc.com/2022/03/06/how-to-know-when-oil-prices-will-cause-a-recession-what-to-invest-in.html

Bottom line: So you can see price rises in gasoline and diesel because of Buffet's investment in electric cars .. CEO Of Pilot & Flying J Exposes The Truth To Why Diesel Prices Are High At Truck Stops
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=169048436 .. the truth as settled on by some.

Or you can see the situation as the result of a number of causes including refiner's capacity, refiner's inclination to take advantage of consumers by maximizing profits, Putin's desire to put pain on Western economies manifest in this continuing war in Ukraine. All contributing to supply and demand.