For the average citizen, it is often not until you fill your tank, stock your fridge, or heat your home that you have a tangible interaction with the global economy. While it is hard to get animated about the Consumer Price Index, the national interest rate, or the performance of the S&P 500, paying twice as much at the pump is hard to swallow. Somewhere between the in-your-face nature of gasoline prices and the abstract financial indicators that talking heads on CNBC drone on about sits the price of diesel. While diesel is a more visible indicator of economic health than most, largely due to its being on the board outside each gas station, the importance of that price can often go overlooked by everyday consumers. Today, we are delving into the importance of diesel prices, and more specifically the importance of the diesel shortage we are currently facing.
To begin with, let’s establish what diesel is. It is a middle distillate, meaning it is made during the middle part of the crude oil distillation process. That means it has a lower boiling range than light distillates such as gasoline but a higher boiling range than heavy distillates such as asphalt. Middle distillates are the primary fuel used in manufacturing, shipping, trucking, freight railroads, mining, and farming. So while gasoline may be the fuel that you follow most closely, it is diesel prices that will cause the cost of nearly all other commodities to go up. Just like the truckers who use it, diesel is one of the great unsung heroes of America’s economy.
Diesel has a greater energy density than other liquid fuels, meaning it produces more energy per unit of volume. That makes it the ideal fuel for larger vehicles traveling long distances or engaging in more energy-intensive work. It powers most farming and construction equipment in the United States and transports nearly all of the products that we consume. It is also used in diesel generators that are frequently used as a source of backup electricity for everything from hospitals to utilities.
Why Is There A Diesel Shortage?
Fears of a severe diesel shortage this summer are being driven by a combination of low inventories, rising demand, and a shortage of refining capacity. These fears are particularly stark in the northeast where inventories are at record lows and Biden is considering tapping an emergency stockpile of diesel. In an eye-opening piece for Bloomberg, Javier Blas highlighted how the number of refineries on the U.S. east coast had halved in the past 15 years, with several of the remaining refineries operating below their normal capacity.
To give you an idea of just how big the current diesel problem is, the price of diesel is currently higher than it was back in 2008 when oil prices hit $147 (compared to $110 today). So while the high price of oil is certainly a major contributing factor to today’s diesel shortage, it is far from the only one. In fact, the need for more diesel is so great that the refining margin to process crude into diesel has hit an all-time high. Thomas Nimbley, the chairman and chief executive of refiner PBF Energy, said that “Any refiner who knows anything about this business, and most of them do, is doing everything in their power to turn every drop of gasoline into a gallon of jet fuel or diesel”.
There are several reasons for this diesel-specific shortage. To begin with, diesel demand has climbed rapidly since the pandemic, with industry bouncing back as lockdowns were lifted. Refining capacity, especially on the east coast, has not been able to keep up. Since the beginning of the pandemic, at least 13 U.S. refineries have been shut down, had capacity reduced, or been repurposed. Meanwhile, demand for jet fuel (which is also a middle distillate) has increased, tightening the fuel market further. On top of all of this, sanctions on Russia have taken a significant portion of diesel out of the international market, with Gulf Coast exporters increasing their exports to Latin America to make up for the shortfall. That increase in exports has only worsened the supply issue within the U.S.
This is a truly global problem, with the threat of diesel shortages around the world. Europe, which traditionally imports around one million barrels per day of diesel from Russia, appears to be the most exposed to the problem as it races to find new sources of the vital oil product. Just this week, Brazil’s state oil major warned that the country would face a diesel shortage if the government doesn’t allow them to price the product at international levels. The UK, which has already sanctioned Russian diesel, is also facing a shortage and is relying on the EU to continue importing it in order to avoid a worldwide shortage.
Looking ahead, there is plenty to worry about in this space. A spike in demand for gasoline and jet fuel over the summer will only tighten the fuel market. Meanwhile, the European Union is considering a ban on Russian oil exports, which could significantly reduce the supply of diesel on international markets. Importantly, diesel demand is less elastic than demand for other products such as gasoline, and it would take a global economic slowdown to significantly reduce this demand.
So next time you pull up to the gas station, share a thought for that other number as well.
By Josh Owens for Oilprice.com
More Top Reads From Oilprice.com:
Middle East Producers Move To Cut Prices As Extreme Backwardation Eases
Could Iraq Dethrone Saudi Arabia As Largest Oil Producer?
Private Equity Is Back With A Bang In Oil & Gas
Read this article on OilPrice.com
Yahoo Finance senior health reporter Anjalee Khemlani looks at the FDA linking myocarditis to Novavax's COVID-19 vaccine, in addition to the rise in monkeypox cases in the U.S.
(Reuters) -Dave Clark, the executive who made Amazon.com Inc into a worldwide delivery behemoth, is stepping down as chief executive of the online retailer's consumer business to pursue other opportunities, the company said on Friday. Amazon CEO Andy Jassy said he expects to name a replacement in the next few weeks and that the company has work ahead "to get to where we ultimately want to be" in the division Clark ran. The departure further solidifies a changing of the guard at Amazon, which for years had veteran ranks under founder Jeff Bezos.
Yahoo Finance Live checks out several stocks tied to leading industry stories, including American Airlines' decision to raise guidance amid the current travel boom and Boeing facing a two-year delay for its 737 jetliner re-designs.
Tesla CEO Elon Musk has a "super bad feeling" about the economy and needs to cut about 10% of salaried staff at the electric carmaker, he said in emails seen by Reuters. The dire outlook came two days after the billionaire told staff to return to the workplace or leave and adds to a growing chorus of warnings from business leaders about the risks of recession. Tesla shares fell 9% in U.S. trade on Friday after the Reuters report.
Tesla stock fell on Friday after CEO Elon Musk reportedly said the electric-auto maker would need to cut around 10% of its workforce.
Oil rig numbers have climbed, but producers remain reluctant to deliver more oil, focusing instead on oil stock investors.
Despite weak balance sheets, these companies are showing good profitability
Ford unveils big plans as it looks to transform 'for the next era of American manufacturing.'
Oil prices are higher than have been seen in years. Saudi Arabia may be the only country that can help.
(Bloomberg) -- Australia’s new government, elected with a promise to accelerate a shift away from fossil fuels, is holding talks with oil and gas giants to ease an energy squeeze that’s delivered a first major test.Most Read from BloombergOne-Third of Americans Making $250,000 Live Paycheck-to-Paycheck, Survey FindsTesla Pauses Hiring as Musk Aims for 10% Staff Cut, Reuters Says‘Most Clever Oligarch’ Severed His $37 Billion Fortune From Russian RootsElon Musk’s Ultimatum to Tesla Execs: Return t
In May, McDonald's Corp sold the restaurants to Govor, one of its licensees in Russia, who will rebrand them under a new name, ending more than three decades of the "Golden Arches" in the country. "We have a challenging and ambitious plan - to reopen all of the chain's restaurants in two months," Govor, who initially owned 25 McDonald's restaurants in Siberia as a franchisee, said in the interview with the Forbes Russia magazine. McDonald's temporarily closed its restaurants in Russia in March after Russia sent troops to Ukraine.
The copper industry is comprised of companies involved in the exploration, extraction, development, and production of copper, one of the most widely used metals. Copper demand is closely tied to economic cycles as it's used for a broad range of applications, including construction, electronics, industrial machinery, transportation, power generation, and transmission.
Tesla shares are down after CEO Elon Musk stated the company would be laying off 10% of its workforce amid his bearish sentiment on the economy.
If oil keeps rising, it would be great news for energy stocks—and oil exploration stocks in particular.
Tesla CEO Elon Musk has a 'super bad feeling' about the economy, according to a report from Reuters.
Ford said that it wants to restructure its dealership model, including building an e-commerce platform where customers can shop for and buy EVs at non-negotiable prices in an effort to match Tesla’s profit margins. “I feel like when that second quarter last year profit came out for Tesla and they showed like a $15,000 premium, it totally changed my world,” CEO Jim Farley said at the Bernstein Strategic Decisions Conference on Wednesday. Farley said he expects massive consolidation among dealers, suppliers and automakers as the industry begins building more EVs.
Tesla CEO Elon Musk's "super bad feeling" about the economy could be the auto industry's "canary in the coal mine" moment, signaling a recession for an industry whose bosses have shown no signs of concern. Musk said the electric carmaker needed to cut about 10% of its workforce in an email to executives seen by Reuters. Musk's warning is the first loud and public dissent in a united stance by the auto industry that underlying demand for cars and trucks remains strong despite two years of global pandemic.
Facebook’s COO Sandberg to quit, fresh data on manufacturing and jobs, Pfizer seeks approval for Covid vaccines for young children, and other news to start your day.
Tesla (NASDAQ: TSLA) CEO Elon Musk is never afraid to speak his mind, and millions of people pay close attention. What's potentially concerning about the Tesla leader's comments, though, is that in some ways, consumer-led recessions can be self-fulfilling prophecies. Musk emailed Tesla executives that he has a "super bad feeling" about the economy, according to reports from Reuters.
Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) have been two chart-topping stocks for the past couple of years. Amazon boasts over 200 million Prime members, and Apple crossed the 1 billion active iPhone mark more than a year ago. Amazon may be best known for its e-commerce business, but it has other lucrative sources of revenue.