Will The First Real US Fuel Crisis Emerge In Diesel? Distillates Market Still Tightening

[hatrack]

The evidence is mounting that the U.S. might just encounter the first real crisis of the oil depletion age before the year is out.

The crisis at first will be one of spiraling prices for diesel and heating oil, followed by actual shortages here in the United States. In the last two weeks, the wholesale price of heating oil has moved up by nearly 70 cents a gallon and no end is in sight. Many observers are starting to note that what they call “a tight market for distillates” –- the industry’s term for diesel and heating oil – may be what is driving up the price of crude and consequently gasoline. The reasons for this surge in distillate prices are easy to understand. Conventional oil production, from which distillates are made, has been flat for the last three years while demand from Asia and the Middle East oil producers has been rising rapidly. The trend into higher-mileage diesel powered cars in Europe and other places, which has been underway for many years, is having a major impact. In some European countries, diesels now account for over 70 percent of new car registrations. This change in demand is leaving Europe and a few Asian refiners with a surplus of gasoline but not diesel. The overseas refiners are happy to sell their surplus gasoline to America which still wants prodigious quantities of the stuff. This, believe it or not, helps keep gasoline prices lower than the price of crude suggests it should be, as unusual quantities of gasoline keep arriving at our shores.

This winter America was awash in gasoline which in turn discouraged the refiners from making more since they were not making much money for their efforts. U.S. refinery utilization dropped to abnormally low levels. Now this was fine for gasoline consumers, who continued to drive around burning cheap, in comparison to the price of crude, gasoline. It did nothing, however, for those who burn diesel and heating oil.

Prices for distillates went up and up and inventories went down and down as we are no longer making enough to satisfy the demand even at outrageous prices, and our imports of finished distillates began to drop as everybody in the world wants the stuff. Imports which were running 300-400,000 barrels a day early last year have been about 200,000 barrels a day(b/d) or less in recent weeks. Most of our distillate imports are coming from Canada as nobody else seems willing to sell us this increasingly valuable commodity.

EDIT

http://www.fcnp.com/national_commentary/the_peak_oil_crisis_diesel_20080515.html

[phantom power]

1. Wow.

[NickB79]

2. Diesel fuel shortages will have dire consequences for farmers

Think the food crisis is bad now? Just wait until we have to start rationing diesel and farmers start cutting back on field cultivation to conserve fuel.

[GliderGuider]

3. You can't car-pool 18-wheelers...

There is much less discretionary mileage in the diesel world -- in North America it's virtually all commercial transport.

[NickB79]

4. So even "just" rationing is untenable for diesel consumption?

Crap, even worse than I thought.

[GliderGuider]

5. Yes, diesel rationing will have a far greater economic impact than gasoline rationing.

[phantom power]

6. And this will be heating oil, too.