Diesel Shortage Deepens Global Dependency On U.S. Fuel

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A deepening dependency on U.S. diesel deliveries in many parts of the world could lead to problems in the coming months as domestic demand for the fuel increases while production fails to increase at the same rate.

Bloomberg reports that the United States is exporting diesel fuel at record rates, reaching 1.4 million bpd in July, which was the highest in five years, according to data from Vortexa.

U.S. diesel shipments go mainly to Brazil, Mexico, Chile, and Argentina, but now they are going to Europe as well.

A lot of the increase is coming from Europe, which is seeking to replace Russian volumes with U.S. ones amid the Ukraine crisis and an oil and fuels embargo that will come into effect towards the end of the year.

The Bloomberg report cited Valero Energy’s chief operating officer as saying during a conference call last week that supplying Europe with enough diesel would be a challenge because of the tight supply situation.

Another challenge would come from higher domestic demand as farmers begin harvesting in the Midwest. Harvest season begins soon in Brazil, too, a big buyer of U.S. diesel.

Diesel inventories in the United States have been in decline for much of this year as demand for fuels continued to recover from the pandemic faster than supply. The latest data from the Energy Information Administration showed yet another inventory decline for the week to July 22, of 800,000 bpd. This compared with a 1.3-million-barrel draw for the previous week.

Production of middle distillates, including diesel, in the meantime, has hovered around 5 million barrels daily.

On the East Coast, a shortage is already looming, according to Bloomberg. Seasonal distillate stocks, the media reported, have been at record lows since May. Last winter, the East Coast already suffered a shortage of diesel, and if the situation continues unfolding the way it is currently unfolding, it could see a repeat.

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