U.S. diesel and heating oil inventories have plunged to historic lows, pushing up prices for fuels essential to industry, freight, agriculture and many households.
Fuels category inventories that include the two products stood at 107.4 million barrels last week, government data showed on Wednesday, up slightly from the previous week but the lowest level for this time of year since 1951.
Highway diesel prices were up 47% from a year ago to $5.35 a gallon, while fuel oil jumped 70% to nearly $6 a gallon. West Texas Intermediate, the US crude benchmark, was up just 6% year-over-year.
“It’s a tough environment. There’s no doubt that energy markets are volatile and inventories are at historic lows,” said Michael Ferrante, president of the Massachusetts Energy Marketers Association, a trade group whose members include fuel oil dealers.
The contraction in diesel inventories comes amid steady demand and growing exports to Europe to offset supplies now permitted from Russia. Pressure on U.S. inventories is expected to worsen in winter, when European sanctions on Russian crude oil transported by sea will tighten in December and be extended to refined petroleum products in February.
The changes threaten bidding wars between the United States and Europe to secure supplies. The International Energy Agency warned on Tuesday of “fierce” competition for non-Russian diesel.
“If Russian diesel flows are cut, everyone is tighter and then it becomes more of a competition for who gets the volumes,” said Richard Joswick, head of global oil analysis at S&P Global Commodity Insights.
Biden administration officials said “all options remain on the table” to deal with the stockpile decline, including possible curbs on exports.
Shippers have already re-routed some international diesel cargo originally destined for Europe to the northeastern United States, lured by high prices, according to Oil Price Information Service, which tracks global oil markets.
“While the stocks themselves may be weak, the reality is that the market will fixate on attracting that barrel from anywhere and everywhere,” said Eric Slifka, managing director of Massachusetts-based Global Partners, which operates oil storage terminals and service stations.
Diesel is a critical input for industry, construction, and freight transportation in the United States. Domestic supply has been squeezed by recent refinery closures, including Philadelphia Energy Solutions’ large 335,000 barrel per day plant on the US East Coast. As of Jan. 1, U.S. crude oil refining capacity averaged 17.9 million bpd, the lowest since 2014, according to the U.S. Energy Information Administration.
“Refining [profit] margins continue to be supported by strong product demand, low product inventories and continued energy cost advantages for U.S. refineries over their global competitors,” said Joseph Gorder, chief executive of the major refinery company. Valero Energy, in an earnings call last month.
Consumer companies such as Bath and Body Works, Kellogg and Clorox have all acknowledged that rising diesel prices are driving up logistics costs and product prices.
“We expect diesel prices to remain firm through the winter, which has ripple effects on inflation for the country as a whole,” Joswick said.