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The world’s diesel crisis will worsen

Despite signs of slowing global economic growth, regional diesel markets are tight and could be further affected when winter comes and Europe bans imports of Russian crude oil and fuels.

Fuel inventories are low in the United States and Europe. U.S. inventories have not increased this summer as usual, and a month since the end of June saw the biggest drawdown for this time of year in at least 32 years, Oilprice said.

Europe’s fuel market is even hotter as industry and utilities look to switch from natural gas to petroleum products after Russia cut supplies to the EU and showed it cannot be considered a reliable energy supplier.

In the next few months, the shortage could become even greater as the heating season approaches, which will coincide with the EU’s planned ban on Russian marine fuel imports in early 2023.

The US is exporting increasing volumes of diesel to Europe, but is unlikely to increase flows significantly – US stocks are also well below seasonal averages, while refineries are already operating at levels close to capacity. U.S. inventories fell by 2.4 million barrels last week and were about 25 percent below the five-year average for this time of year, the EIA’s latest weekly inventory report showed this week. At 109.3 million barrels as of July 29, inventories of diesel, fuel oil and other distillate fuels are currently at their lowest level for this time of year since 1996, according to estimates by Reuters market analyst John Kemp .

Typically, U.S. distillate fuel inventories rise during the summer season when refiners process crude oil into more gasoline to meet summer season demand. But that hasn’t been the case this year — in fact, distillate stocks fell by as much as 3 million barrels in July, the biggest seasonal drop since at least 1990, the analyst added.

The looming EU embargo on Russian crude oil and products is prompting European traders to increasingly source diesel from non-Russian sources. The US is one such source and its exports reached 1.4 million barrels per day in July, the highest level in five years. Much of the increase came from Europe.

The Old Continent has not made significant progress in reducing diesel imports from Russia. Europe increased imports of Russian diesel in July, data from energy analysis firm Vortexa showed this week. European diesel imports from Russia rose to an unusually high 680,000 bpd in July, up 13% month-on-month and 22% year-on-year, and outpacing supplies from outside Russia by about 200,000 bpd, according to Vortexa data.

There is already a fuel shortage in Germany

The main route for their transport is “closed”


“Overall, it seems doubtful that the Europeans will be able to fully implement the announced ban on diesel imports, given record diesel prices over the past five months, as well as Europe’s increasing, rather than decreasing, dependence on Russian diesel, restrictions within of the global refining system and a likely significant role for diesel as a replacement fuel for natural gas and electricity shortages,” wrote Vortexa Chief Economist David Weh.

According to American refiners, there can be no further increase in the supply of diesel from America to Europe. “It will be a real challenge for us to be able to supply much more diesel to Europe,” said Gary Simmons, executive vice president and chief commercial officer of Valero Energy.

The switch from gas to oil in Europe, as the winter heating season approaches, is likely to support demand for distillate fuel and potentially further tighten the diesel market.

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