You may have noticed that gas prices are spiraling out of control. Inflation is only one of the reasons. The biggest factor driving prices up at the pump is fuel supplies. Reuters is reporting that here in the United States, “distillate fuel oil inventories have fallen to a 14-year low.” There is only one real cure for that, the experts say, and you aren’t going to like it.
Get used to gas shortages
Refiners are totally unable to keep up with the demand for “distillate fuel oil.” That’s the gas grade commonly known as “diesel.”
U.S. stockpiles have dropped to a 14-year low. Freight haulers and manufacturers can’t get enough of the stuff and that forces prices through the roof.
According to high-frequency data from the U.S. Energy Information Administration, distillate fuel oil reserves have dropped steadily “over 60 of the last 96 weeks by a total of 69 million barrels since the start of July 2020.”
That drives up the price of all gas grades.
The first wave of COVID lockdowns hit during the second quarter of 2020 and that led to a 49 million barrel build-up. That’s already been pumped away.
Last week’s figures show we’re down to only 104 million barrels, “the lowest since 2008.” Diesel gas reserves in specific are down to 31 million barrels, “or 23% below the pre-pandemic five-year seasonal average for 2015-2019.”
Stocks don’t replenish on their own
The experts say the outlook is grim over the long term because “distillate stocks do not replenish themselves spontaneously.” It seems that they only “recover when the economy goes into a ‘soft patch’ or a full-blown recession.”
That means the economy needs to collapse before we can start building gas reserves again. Right now, refiners in the United States and the rest of the world can’t possibly keep up with the demand.
Inventories are expected to shrink and the latest figures show it could get worse than they thought. “The projected inventory outlook has tightened since the start of April, when stocks were on course to fall to a low of 107 million barrels with a range of 96 million to 114 million.”
In the long run, the “resulting shortages of distillate are driving prices for both distillate itself and crude sharply higher and are bleeding across into shortages and higher prices for gasoline and jet fuel.” Prices are skyrocketing for all grades of gas.
The experts note that Diesel “is mostly used in road and rail freight, manufacturing, construction, farming, mining, and oil and gas extraction, so consumption is very sensitive to the business cycle.”
What that means for the rest of us is that the “shortage is likely to be intensified later in 2022 and 2023.” Making things even worse are “U.S. and European Union sanctions on Russia’s petroleum exports.” That’s going to hurt “because Russia is a major supplier of distillate fuel oil.“