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by Josh Delfosse
Josh Delfosse

5 min read

Autumn U.S. Diesel Market Outlook: Transparency Amid Conflicting Views

September 15, 2022

Josh Delfosse
by Josh Delfosse


Competing economic factors are likely to have a lasting impact on the energy market into autumn and the winter season. While concerns of a weakening economic outlook loom over the market, freight demand remains above pre-pandemic levels at a time when U.S. diesel inventories are at their lowest level since 2000 for this time of year. As harvest season begins, hurricane season in the U.S. enters peak months, and fall maintenance temporarily closes refineries, upward price pressure will become a reality unless demand destruction occurs. Economists are forecasting soaring inflation and higher interest rates that could raise the concern of an impending recession, which would erode diesel demand. This ‘tug and pull’ of the market is leaving economists and shippers around the world left to question, “What is the future of the energy market?” In analyzing what we know to be true, we can provide our unbiased industry view.

Average utilization rates show U.S. refineries are operating at capacity

Refineries across the U.S. continue to operate at optimal levels to keep up with demand. In August, the Golf Coast region – the largest refining region in the country—maintained an average refinery utilization rate of 96.3 percent. Meanwhile, refinery operations in the Midwest and East Coast averaged around 95.7 percent. Operating at high utilization rates for a sustained period often leads to longer downtimes during the maintenance season to return to optimal performance. Prior to 2020, U.S. refineries typically operated at 90 percent.

The substantial profit U.S. refineries are making is also causing a commotion. The diesel crack spread, which represents the profit from converting a barrel of crude into diesel, broke $70 a barrel in August. This time last year the crack spread was below $20 a barrel. This creates a large concern among shippers and carriers who need to absorb these steep prices until they trickle down to the end consumer. To reduce the upward price pressure, shippers are seeking solutions like Fuel Recovery to reimburse carriers with a real-time, shipment-level calculation instead of on a national average or PADD region.

U.S. refiners see no indications of reduced refined product demand. Meanwhile, supply is predicted to stay consistent unless there is a market disruption or refiners temporarily close for fall maintenance.

Diesel fuel inventories are at historically low levels

Diesel fuel inventories, which are closely tied to the economic cycle, are currently below the five-year seasonal average. While they had the opportunity to build in May through late July, inventory levels remain lower than what is typically seen this time of year. The number of barrels in the strategic petroleum reserve (SPR) continues to decline since the Biden administration began releasing one million barrels per day into the market. The release will continue through the month of October and will account for a total of 180 million barrels of crude oil. Meanwhile, diesel fuel inventory levels remain on the minds of many as alternative energy sources are not developed enough to support diesel demand, no other refineries are scheduled to come back online, and while there are some projects overseas in development, they are not scheduled for operation until early 2023.

The U.S. distillate days of supply continues to decrease with the U.S. forecasted to tighten in November should diesel inventories follow recent seasonal trends.

Autumn U.S. Diesel Market Outlook: Transparency Amid Conflicting Views 

Natural disasters could add additional tightness to the market The number of natural disasters continue to rise each year because of several climate factors. National Oceanic and Atmospheric Administration (NOAA) forecasts the Atlantic region to experience 14 to 21 named storms with 70 percent confidence during the 2022 Hurricane season which is from June 1 to November 30, with peak activity occurring between mid-August and mid-October. If a major storm hits one or more of the refineries and causes them to close for any period, this will disrupt the supply and demand balance for the entire U.S. and cause upward price pressure. In 2021, the total cost for weather and climate disasters was $145 billion, which was the seventh consecutive year of 10 or more billion-dollar disaster events occurring in the U.S. High inflation rates and higher interest rates could slow consumer demand From an optimistic perspective, in August every state throughout the U.S. experienced month-over-month decreases in diesel market prices as diesel demand softened over economic concerns and slowing freight demand. The Federal Reserve raised interest rates by 0.75 percent in July, after four increases in five months. July’s rate increase met the Federal Reserve target of 2.25 percent to 2.5 percent. After the Federal Reserve announced the rate change, the inflation report recorded a consumer price index (CPI) of 8.5 percent before seasonal adjustment. As a result, consumer demand has softened reducing freight and diesel demand. China continues to enter lockdowns Concerns over demand have recently become greater as Chinese manufacturing activity in July decreased. One of China’s most populous and economically important cities, Chengdu, announced a COVID-19 lockdown in late August. This has a significant impact on global energy as China is the largest consumer of crude oil in the world. When China sees demand fall, the market reacts with downward price pressure. Conclusion Diesel prices and price volatility are expected to remain difficult for shippers to manage through autumn and winter. Production rates, diesel inventories, hurricanes, and consumer demand will all play a role in our near reality. While the future is uncertain, strategic transportation partners, like Breakthrough, can empower shippers with data, technology, and market knowledge to make informed decisions on what is best for their transportation network. With oil demand projected by the International Energy Agency to surpass oil supply during 2023, we need to be considerate of our decisions and work together to reduce energy consumption. Interested in receiving a reliable fuel forecast to enable efficient, agile supply chain strategies? Schedule a demo of Fuel Recovery.

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