Diesel drives the economy, but it was only last year that the price of the fuel became a topic of dinner-table conversation.
Retail diesel prices hit an all-time high of $5.816 per gallon last June 19, part of a massive upswing. increase in energy costs Following Russia’s invasion of Ukraine This took a toll on the transport budget and reduced inflationary pressures. Although prices have fallen by more than $1 per gallon since then, many of the same factors that drove up prices remain firmly in place.
Across America, diesel remains in tight supply; east coast especially Pressed to keep tanks fully stocked, US distillate stocks, which include diesel, are at least 28 million barrels below their five-year average, based on data from the Energy Information Administration. The East Coast accounted for more than half of the losses.
Some supply issues go back to pre-COVID 19 events, including the June 2019 fire a major east coast refinery, The Philadelphia Energy Solutions refinery provided approximately 30% to 35% of diesel in the Mid-Atlantic and Northeast markets. The permanent loss of that refinery has left the East Coast dependent on supplies from the Gulf Coast by pipeline and on foreign imports as well as local refineries.
A few more events on the horizon are likely to keep prices of refined products such as gasoline, diesel and jet fuel relatively high through the second quarter.
The first is US refining maintenance season.
This is expected to be a year of heavy maintenance as refineries suspended significant work during 2020 and 2021 due to COVID-19. Many limited the movement of outside maintenance contractors to their sites, and maintenance work was curtailed in 2022 as companies sought to shore up deteriorating profit margins.
But refineries can’t postpone maintenance forever, and costs and down time at facilities are coming up with the bill.
The Phillips 66 Bayway Refinery in Lyndon, NJ, is scheduled to begin significant work on February 2 that could affect production. The refinery is a significant provider of New York Mercantile Exchange Ultralow Sulfur Diesel, or NYMEX ULSD, and also known as RBOB, or gasoline blendstock prior to ethanol blending.
Pump prices skyrocketed after Russia’s invasion of Ukraine sent energy markets into turmoil.
photo:
Rogelio V. Solis/Associated Press
Any complications in restarting the facility after maintenance is completed could increase diesel and gas prices.
The second event is on EU sanctions Russian Refined Products Scheduled to start on 5th February. Europe is weaning itself off Russian crude oil and natural gas, but Russian diesel may prove difficult to replace. World markets could feel the impact as Russia tries to find new customers.
Sanctions on Russian products mean Europe’s diesel imports will travel longer distances on ocean tankers, tying up capacity and likely increasing shipping costs.
Barring a few bursts of arctic weather, diesel prices have been relatively stable in January due to a mild winter in the Northern Hemisphere. But those patterns are forecast to change in February, with temperatures in the Northeast expected to drop to below-average levels, boosting demand for heating oil.
The NYMEX ULSD futures market is still pricing in a near-term trend known as backwardation, in a tightly supplied market. This is where the current prices exceed the forward deferred prices. Currently, ULSD futures are trading at their highest levels before Thanksgiving.
At that time the prices of diesel in America were at the retail level. were $5.25-5.30 a gallon grade. Based on the most recent US average price of around $4.60 per gallon, an increase of more than $5 in the near term should not be ruled out. Retail diesel prices should reach $4.75 a gallon by the end of January.
Even as supply pressure continues, the 2022 peak is likely to remain in the record books and is unlikely to be surpassed this year.
Denton is the Chief Oil Analyst at Cinquegrana Oil Price Information Service. OPIS is owned by Dow Jones, which also owns The Wall Street Journal.
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