They’re just not available.”Īs a result, US oil production is just under 12 million barrels a day, 8% lower than in 2019. “It’s not like they’re available at a premium price. “They can’t find people, and can’t find equipment,” said Robert McNally, president of consulting firm Rapidan Energy Group. They’re also having trouble sourcing some of the equipment they would need to ramp up production, including pipes and specialized sand used in fracking to extract shale oil. Like many industries during the pandemic, oil producers are struggling with a shortage of workers. But several issues are stopping these companies from scaling up production. Making more US oil could net a tidy profit for producers while lowering prices at the pump for drivers. And other major producers like Saudi Arabia have indicated they won’t fill the global supply gap. On the face of it, it’s an ideal time for US firms to cash in on high prices after Russia’s invasion of Ukraine: Traders are nervous about purchasing Russian oil due to uncertainty about the situation, though those exports aren’t subject to current sanctions. John Kemp is a Reuters market analyst.Oil prices are soaring to seven-year highs, but don’t expect US oil producers to ramp up supply. Recession will be necessary to rebalance the oil market (Reuters, Sept. Diesel’s gloomy message for the global economy (Reuters, Oct. Rebalancing diesel supply will likely require a further rise in interest rates and tighter financial conditions in the United States and other major economies to reduce fuel consumption to more sustainable levels. If confirmed that would take some of the pressure of distillate inventories.īut a deeper and more prolonged slowdown in the United States and/or in Europe and Asia will be needed to boost inventories significantly. There are early indications manufacturing and freight activity peaked in the third quarter of 2022. Stabilising then rebuilding inventories to more comfortable levels will require a significant slowdown in freight movements and manufacturing activity. Federal Reserve and manufacturing activity in surveys by the Institute for Supply Management. Growth in distillate consumption has been closely correlated with changes in industrial production estimated by the U.S. The twelve-month calendar spread for ultra-low sulphur diesel futures has flared out to a backwardation of $50 per barrel from less than $10 this time last year, as traders anticipate physical shortages.Īs a result, retail diesel prices including applicable taxes are now $1.45 per gallon higher than for gasoline, a record premium, up from just 24 cents per gallon a year ago.ĭistillate fuel oil is primarily used in freight transport, manufacturing, farming, mining and the oil and gas industry itself, so consumption is strongly influenced by the economic cycle. Reflecting the intensifying fuel shortage, futures prices for ultra-low sulphur diesel (ULSD) delivered in New York Harbor in December are trading at a premium of $60 per barrel over Brent. Since then, the inventory position has tightened even further, with stocks estimated to have fallen to a record seasonal low of fewer than 27 days of demand in October.Ĭhartbook: U.S. In terms of consumption, however, inventories at the end of July were equivalent to just 30 days of demand, the lowest seasonal level in monthly records going back to 1945. The deficit has been worsening steadily since the start of the year when stocks were 15 million barrels (-11% or -1.18 standard deviations) below the ten-year average.īy the end of July, stocks had already fallen to 113 million barrels, the lowest since 1996 and before that 1954, based on the most recent data available from the EIA’s more comprehensive monthly surveys. Energy Information Administration (EIA) started collecting weekly data in 1982.ĭistillate inventories were a massive 26 million barrels (-20% or -1.94 standard deviations) below the seasonal average for the previous ten years (“ Weekly petroleum status report”, EIA, Oct. 21, the lowest for the time of year since the U.S. Stocks of diesel and other distillate fuel oils were just 106 million barrels on Oct. diesel supplies are becoming critically low with shortages and price spikes likely to occur in the next six months unless and until the economy and fuel consumption slow.
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