With the EU embargo on Russian oil products set to come into effect in February, diesel markets are sure to tighten further.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, The Wall Street Journal reports.
The premium of diesel over gasoline has widened this year to over $1.60 per gallon, up from a premium of just $0.23 a gallon over gasoline last year. Wholesale diesel at New York harbor also traded at a record premium to crude oil last month, the Journal says, citing EIA data.
In a recent overview of the diesel market in the United States, the EIA noted that strong demand for diesel has led to high prices and tight inventories going into winter. In October 2022, the United States had 25 days of supply of distillate, the fewest since 2008, according to the administration. To compare, between 2017 and 2021, the U.S. had an average supply of diesel of 34 days.
“The increase in diesel prices, both in the United States and globally, has been the result of a number of factors, such as tight global inventories, reduced refinery production in Europe following labor strikes, and the start of seasonal demand for distillate as a home heating fuel,” the EIA said last week.
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.
Currently, diesel markets are already “exceptionally tight” and will become tighter still when the EU embargo on imports of Russian products by sea enters into force in early 2023, the International Energy Agency (IEA) said in its monthly report on Tuesday.
Even before Russia’s invasion of Ukraine in February this year, diesel markets were already in deficit because 3.5 million barrels per day (bpd) of refinery capacity globally had been closed down since the start of the pandemic, resulting in a net decline of 1 million bpd, the agency said.
Stubbornly high diesel prices fueling inflation as well as slowing economies are expected to lead to a slight decline in global diesel demand in 2023, the IEA said.