Drama over diesel

November 2, 2022

“Dangerous situation”

A flurry of reports questioning America's supply of a driver of the global economy.
What's the deal with diesel?

Why Diesel Matters

  • Diesel = “the fuel that drives the global economy.”
  • “Most freight and delivery trucks as well as trains, buses, boats, and farm, construction, and military vehicles, and some cars and light trucks have diesel engines” (eia.gov).
  • Diesel is refined oil designed specifically for a diesel engine. It has similar ingredients to gasoline (crude oil, biomass), but is refined differently.
  • For Perspective: One barrel of crude oil will produce about 20 gallons of gasoline and about 12 gallons of diesel fuel/heating oil.

What's Going On?

  • Concern about diesel supply dates back for several months.
  • The supply issues came from a few factors, including less refinery capacity to make diesel. U.S. refineries shuttered during COVID and some haven’t come back online. There’s also less diesel in the market due to sanctions against Russia (a supplier of crude oil to the global economy).
  • We do have less diesel supply than normal (lowest inventory in about 15 years). But there’s a difference of opinion about how big of a deal this is.
“It’s a dangerous situation. I’ve never seen anything this bad going into winter ever and if we get a colder than normal winter we’re gonna run out of supplies. There’s going to be shortages, there’s going to be rationing.”

Phil Flynn, energy market analyst, PRICE Futures Group. One variable in this story? Weather. As Europe stopped buying Russian fuel (often used for heating homes and factories), competition for diesel fuel has increased.

"Inventories of diesel and gasoline are down below five-year averages, and if the entire world were to stop, we would have 25 days worth of diesel. But the world doesn't stop. We're not counting on it stopping."

Ed Hirs, professor of energy economics at the University of Houston, explains: “Your grocery store may have an inventory of three days of milk. That’s because they only have three days’ worth at any given point. But the cow keeps milking, the farmer keeps sending milk, the dairy keeps delivering.”

Bottom Line: We’ll continue to watch this developing story. Professor Hirs calls the alarm over a diesel supply shortage “not real” – explaining that currently in the U.S. “we have 25 days’ supply when we would ordinarily have around 35 to 40.” He says the real threat to the market is panic that leads to stockpiling. Others, however, say the supply issues will continue to lead to higher prices for consumers.

Diesel fuel explained (Independent Statistics & Analysis, U.S. Energy Information Administration)

Market News on Energy, Diesel

No, the U.S. is not going to run out of diesel fuel in 25 days (CBS News)

by Jenna Lee,