Disruptions dodged as diesel shortage eases

National, global refining capacity being bolstered

There is still a national diesel fuel shortage, but a small price drop and the reactivation of a few American refineries have avoided disruptions in the crucial traffic of trucks, trains and ships.

Waco economist Ray Perryman and Texas Oil & Gas Association President Todd Staples say the scenario is getting more complex by the day.

“While diesel supplies remain very tight, they are holding fairly steady,” Perryman reported. “Prices have fallen slightly over the past few weeks, though they remain elevated compared to a year ago.

“Any time we talk about ‘days of supply,’ it’s a snapshot in time. Every day we use some of that supply up, but refineries produce more and add to the supply.”

Perryman said the diesel inventory is low for this time of year for a number of reasons.

“We’d like to see a little more slack in the system in case of an event such as a notable outage at a refinery,” he said. “But the fact that prices are easing a little is a positive signal that supply and demand are coming into better balance.

“I don’t think we’ll see the major rearranging of truck routes or schedules or other substantial disruptions so long as there isn’t a major problem with a refinery.”

The national average price of a gallon of diesel Monday was $5.141, compared to $5.341 Oct. 24 and $3.724 a year ago.

Perryman said supplies will stay tight but will be sufficient for immediate needs while some refiners finish seasonal maintenance and more capacity comes online in the next year or two. Staples said from Austin that the pandemic led to the loss of millions of barrels per day of distillates — diesel fuel, jet fuel and the heating oil that’s heavily used each winter in the American Northeast — in the United States and abroad.

“Government fiat and pressures to prematurely phase out internal combustion engines are sending the wrong market signals to the industry and they are a contributing factor to the tighter market conditions being experienced along with the disruption to the normal supply chain by Russia’s aggressive military action,” Staples said.

“The rush by governments to change market behavior in the future is impacting investment decisions in the present and it is important that world leaders celebrate the innovative solutions industry is providing to develop cleaner, better and stronger energy improvements to the use, production and processing of oil and natural gas.”

He said enhancing certainty is the best way to avoid supply imbalances.

In Washington, D.C., the U.S. Energy Information Administration says widespread refinery strikes in France are further reducing global diesel supplies.

“In addition, regional production of distillate in the U.S. Northeast has been less than historical levels since the closures of the Philadelphia Energy Solutions refinery in 2019 and the Come-by-Chance refinery in Newfoundland in 2020,” an EIA spokesman said.

“We forecast that distillate prices will fall slightly in December as activity at some refineries in Europe increases and U.S. refiners finish their seasonal maintenance. We expect new capacity coming online in the Middle East, China and the United States through 2023 to contribute to lowering distillate margins.”

No new refineries are being planned or built in America, but major expansions are underway at a handful of Texas Gulf Coast plants including ExxonMobil’s Beaumont facility, which will increase its capacity by 250,000 barrels per day next year.

Gulf Coast refineries are currently making 54 percent of all the distillates produced in the nation.