The diesel shortage in Europe and the United States has eased slightly

Since the beginning of this year, the global diesel shortage has become more and more serious, and there has been a shortage of diesel supply in many places, and prices have risen
to varying degrees.
Since diesel is mostly used in heavy-duty vehicles and agricultural machinery, its price increase has affected the logistics industry and agriculture, triggering concerns about diesel shortages in the downstream industry
.
At present, this problem has eased, but it remains to be seen
how the diesel market will develop as the European ban on Russian petroleum products comes into effect.

European and American diesel prices have retreated

Since the beginning of this year, global diesel prices have increased
to varying degrees.
Among them, the price increase of diesel in Europe and the United States is the most obvious
.
The high diesel price trend diverges from the crude oil price trend, resulting in the price spread between diesel and crude oil is also at a high level
.

U.
S.
gasoline prices have risen about 14 percent this year, but diesel prices have risen about 50 percent over the same period, reaching a high of $5.
35 a gallon in October
, according to the American Automobile Association and the Oil Price Information Service.
However, the latest data from the U.
S.
Energy Information Administration (EIA) showed that the price of U.
S.
road diesel retraced to $
5.
23 per gallon in the week of November 15-21.
In Europe, the price of diesel in Germany and France in the same period was 1.
91 euros / liter.

Although diesel prices in Europe and the United States are still at high levels, they have fallen
slightly compared to October prices.
In the week of November 15-21, U.
S.
diesel prices fell for two consecutive weeks, falling by nearly 3%; Diesel prices in Germany were 10.
75%
lower than in the same period in October.

Compared with the soaring diesel price, international oil prices have turned into a decline since mid-June this year
.
Since October this year, the price of New York crude oil futures has remained at $90 / barrel, and by the end of November, it fell below $80 / barrel, almost returning to the situation
in January this year.
This has led to a high premium over crude oil for diesel
.
According to EIA data, the wholesale price premium of diesel shipped to New York Harbor in October over crude oil has reached a record level
.
According to the International Energy Agency (IEA), global diesel prices and cracking spreads in October were 70% and 425%
higher than the same period last year, respectively.
In contrast, Brent crude prices rose only 11%
over the same period.

In addition to the United States and Europe, diesel shortages have also been reported
in South Africa and South Korea.
Due to the development of diesel power generation in South Africa, the country has proposed a power rationing order
.
South Korea's diesel shortage has triggered a general strike
in the logistics industry.

Supply and demand are the main cause of the diesel shortage

From the current market situation, supply and demand are the most important factors
causing the high price of diesel this year.

From the supply side, the supply of diesel in Europe and the United States is still on the tight side
.
Since the summer of 2020, the new crown pneumonia epidemic has caused a sharp decline in demand, coupled with the introduction of low-carbon policies, which has led to the accelerated shutdown of refineries by major refiners around the world, and the overall decline of global refining capacity
.
According to market sources, from 2020 to mid-2022, 3.
8 million barrels of crude oil per day will be shut down
per day.
Shut down refineries and investments have generally shifted to producing low-carbon fuels or renewable energy
.

Affected by the decline in refinery capacity, diesel inventories in Europe and the United States have always been at a low level
.
In the week ended November 24, diesel stocks in the Amsterdam-Rotterdam-Antwerp (ARA) center were at a six-year low; According to EIA data, U.
S.
stocks of distillate fuel oil, mainly diesel and heating oil, reached 109 million barrels in the week ended November 18, still at the lowest level
since 2008.
In its recently released November short-term energy outlook, EIA said that the average distillate fuel oil inventory in the United States is 17%
lower than its forecast five-year average for 2023~2027.

However, in terms of demand, after the middle of 2022, with the full recovery of social life in Europe and the United States, the demand of the logistics industry and the power industry has restored the downstream demand for diesel, but due to the previous capacity reduction and industry transformation, the supply cannot keep up with the current demand, which naturally leads to an increase
in diesel prices.
Among them, in the United States, the most affected by the diesel shortage is the northeast region with a developed logistics industry and more dependence on oil-fired power generation and heating, and the diesel inventory in the region is 40%
lower than the low point of diesel inventory in the previous five years.

The diesel shortage is improving

Since November, the diesel shortage in Europe and the United States has eased, and diesel prices have declined
.
The cause of the diesel shortage lies in the relationship between supply and demand, and countries also start from the relationship between supply and demand to improve the situation
of diesel shortage.

The United States has asked refiners to invest in increased production
.
For now, the U.
S.
government has asked refiners to voluntarily stop exports, rebuild inventories before winter and increase gasoline and diesel deliveries
to the northeastern United States.
Otherwise, the US government will impose a windfall profits tax on refining giants and will not rule out restrictions
on diesel exports.
In addition, the record spread between diesel and crude oil also contributed to the recovery
of diesel production.
U.
S.
distillate fuel oil inventories increased by 3 million barrels
in the six-week period from Oct.
7 to Nov.
18, according to EIA data.
The increase, while small, is contrary to the normal trend of declines at this time of year, suggesting that high prices and a slowing economy are beginning to rebuild inventories
.
In Europe, ARA Center diesel inventories rose 4.
19%
month-on-month in the week ended November 24.
According to OPEC's latest monthly report, the operating rate of refineries in 16 European countries in October this year was 80.
01%, down 3.
83 percentage points from September, but increased by 0.
71 percentage points
from the same period last year.

However, Europe faces a slightly different
situation than the United States.
The rise in the price of diesel in Europe also has the factor
of rejection of Russian diesel.
According to the IEA's November oil market report, Russian diesel imports from EU countries fell to 560,000 b/d
as of October.
But when the refined oil embargo comes into effect on December 5, the EU needs to seek 1 million b/d replacement for diesel, naphtha, and fuel oil, and the European refining industry must step up to fill the gap
.
In addition to local refining, refined products from the Middle East and India will be the most realistic options
for Europe.
Its impact on the diesel market remains to be seen
.