Despite growing fears of a global economic slowdown, diesel supply remains a concern and the situation may still get worse than it is now.
Reuters’ John Kemp wrote In his latest column on buying oil, hedge funds and other institutional traders had bought diesel contracts at the fastest pace since November 2020 last week, adding the equivalent of 9 million barrels to their holdings.
Meanwhile, Bloomberg reported that US diesel demand specifically hit the highest level in five years, and may rise further as we head into winter. US diesel exports reached an all-time high last month, with South America and Europe absorbing the majority of these exports.
At the same time, India has imposed limits on diesel exports to ensure there is enough for the domestic market. On top of that, European buyers are shunning Russian diesel due to sanctions, even though the fuel embargo against Russia will only come into effect at the end of the year.
The diesel shortage issue isn’t exactly new, but it’s now attracting a lot of attention.
“Governments understand very clearly that there is a clear link between diesel and GDP, because almost everything that goes in and out of a factory uses diesel,” a senior executive at the European Association of Petroleum Refiners said in March, shortly after of the The EU began to impose sanctions on Russia.
Russia is the EU’s biggest supplier of diesel, shipping some 750,000 barrels a day there to fuel its heavy industry, freight transport and a host of other industries that underpin the bloc’s economy.
But aside from the sanctions, the diesel market appears to have experienced the same thing as the crude oil market: demand rebounding much faster than supply growth.
This demand growth slowed recently, with Kemp reporting last month that expectations of a global slowdown amid central bank rate hikes and inflation had started to dampen strong diesel demand and lead to lower prices, but it appears this was temporary and fuel demand for industrial transport is again on the rise.
In another column, however, the Reuters market analyst indicated that US crude oil inventories were not recovering despite fuel price inflation, which meant tight fuel markets and high prices were likely to continue next year.
Just this week, the Department of Energy reported that US oil inventories in the Strategic Petroleum Reserve had fallen to the lowest level since 1985 at 469.9 million barrels.
Meanwhile, in some African countries, the shortage of diesel for drivers is a fact and is causing several problems. In the Central African Republic, humanitarian organizations have reduced their activities due to the shortage of diesel. In Cameroon, drivers have taken to the streets to protest the shortage.
It’s not just Africa either. In Brazil, the state oil company Petrobras warned told the government last week that a diesel shortage could haunt the country unless Petrobras was allowed to sell fuels at market prices.
In Europe, fuel buyers are scrambling to secure fuel supplies before the embargo on Russian barrels kicks in in December, with many admitting it will be tough to get in next year.
Meanwhile, the United States needs to balance domestic diesel demand with international demand, which could be challenging as diesel and other distillate stocks are in decline for much of this year as production has failed to catch up. increase substantially.
US diesel demand increases seasonally in the fall as harvest season begins in the Midwest, meaning there may be less diesel to export. This would exacerbate the supply situation in other parts of the world and lead to higher prices even with continued expectations of an economic slowdown.
By Charles Kennedy for Oilprice.com