There's a supply-side crisis brewing for diesel just in time for the busy shipping season that precedes year-end holidays, though the situation is gradually showing signs of improvement. File Photo by Stephen Shaver/UPI |
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Nov. 2 (UPI) -- U.S. federal data from Wednesday show the domestic production of much-needed distillates, a product that includes diesel, increased, but so too did demand, keeping the market on edge amid supply-side fears.
There's a looming shortage of refined petroleum products in no small part because of the Western-backed efforts to shun Russian supplies in response to its continued aggression in Ukraine. That's becoming a growing concern most notably for diesel given its importance in the global shipping industry.
The Energy Information Administration, part of the Energy Department, reported that refineries were operating at about 90.6% of their peak capacity during the week ending Oct. 28, a slight improvement over the prior week.
Refineries have been working at near-full tilt in order to keep pace with the supply-side challenges gripping global energy markets. While the United States is a major producer of oil and gas networks, domestic infrastructure is such that parts of the country remain dependent on imports while others can only get so much diesel, jet fuel and other refined petroleum products because of capacity limitations on pipelines.
There may be some relief in store, particularly for what the industry calls PADD 1, the East Coast market, which is running dangerously low on inventories.
EIA reported that distillate fuel production increased by about 100,000 barrels per day from the previous week to reach 5.1 million bpd for the period ending Oct. 28.
On the demand side, EIA reported that total products supplied to the market, a proxy for demand for everything that comes out of the refinery, is down about 0.5% for the four-week average compared with year-ago levels.
But it's another matter for just distillates -- the government reported demand is up 5.1% from year-ago levels to average 4.1 million bpd over the four-week period.
Mansfield Energy, a key fuels supplier with an estimated 8,000 customers across North America and Canada, said the situation is improving somewhat as market players anticipate a build-up in supplies. Inventories are dangerously low -- total distillate inventories in the United States are a good 20% below levels from this time last year -- but the company said at worst, there may be some sporadic outages that will be filled by other nearby suppliers.
The company adds that, because of the way wholesale trading works, there's a lot of buying at the end of one month rather than at the beginning of the next and that may help explain some of the trends in the EIA's report.
"We could see a recurring pattern in the next few months of supply tightening around the end of the month and early in the new month, then improving in the following days," Mansfield said.
