A brooding prospect of shortage but no conviction yet that there will be a shortage

Just a note on something which might, in two months, be a big deal, or might, in two months, never have seen the light of day.

For perhaps four months now, I keep seeing intermittent news stories about an emerging diesel fuel emergency.  It has usually been cast primarily as an East Coast and Midwest issue.  The stories are usually in obscure outlets with very narrow areas of focus.  

The importance of the issue is that diesel fuels much of the US transportation fleet.  No diesel, little movement of goods.  

The news stories never get much prominence and there seems no national panic.  But they keep coming and seem to be coming more frequently and are beginning to show up in more mainstream outlets. 

Supposedly we are down to a 25 day supply of diesel which could be panic inducing if I actually what the normal supply levels are.   None of the reports I have seen raising the alarm over the 25 day supply mentions why 25 days is alarming.  

A little searching and I find an article in Freight Waves from two years ago which seems to shed a little light.  From Diesel inventories have done something in the US not seen in at least 30 years by John Kingston.  Published October 19th, 2020.  

The most easily understood inventory number is “days cover.” That number is reached by taking  daily consumption, dividing it into inventories and the result is the number of days of consumption that could be covered by existing stocks.

For distillate inventories that don’t include jet fuel, that number tends to run in the range of 28-35 days. But earlier this year, as diesel inventories began to soar due to changes being made by refiners seeking survival — more on that later — the days cover figure broke above 50 days. In the history of the EIA series going back to 1991, the days cover figure broke above 50 only a handful of times. It was never sustained above that level.

This year, the days cover figure broke through 50 days in late May and stayed above it for nine out of the next 10 weeks. The growth in inventories was unprecedented. It dropped below 50 days in early August but stayed in the 47 to 49 days’ range all through September and into October. That was unprecedented.

But last week, that number plummeted to 42 days, a drop of 6.1 days. It was easily the biggest one-week decline in the history of the series. It meant that in one week, six days of distillate/diesel inventory cover disappeared. That had never happened before.

The story is that during Covid-19 disruptions, diesel fuel inventories have gone from their normal levels of 28-35 days way up, breaching historical highs of 50 days of inventory.  Now that things are settling back down, inventories at first settled back to their more normal levels of 28-35 days.  

Now they have dipped below that to 25 days inventory.

Does this presage further losses in days inventory and a potential shortage?

I have no idea.  25 days does not seem like panic territory.  With two caveats.  Part of the drawdown is presumably a consequence of the rebound in the airline industry (jet fuel and diesel being from the same distillate feedstocks).  This should be a matter of simple supply-chain catch-up.

The first caveat is that a good number of refineries were shut during the Covid-19 lockdowns.  Given the current regulatory regime bias against fossil fuels, many of those refineries have not been able to reopen due to near terms economics, longer term strategies, or regulatory burden.  If we had all the refineries we had three years ago, we would expect the supply chain kinks to straighten out but that might not be possible now.

The second caveat is that diesel can be used as a substitute for heating oil.  Given that there are mixed winter forecasts for the US (some models predicting colder than normal and others slightly warmer) and given that the northeast is already supply constrained for natural gas, it is possible that demand for diesel will be above normal.

All of this is to say that I see a quiet rumbling of concern about diesel fuel supplies (days inventory) as well as concerns about demand and capacity to increase supply.  Will this lead to a real shortage of diesel which actually affects transportation in general and goods deliveries in particular?  

I have no idea.  It is one of those things that sit out there at the edge of the radar.  Known to exist but uncertain in nature, speed, direction or magnitude.  

A brooding prospect of shortage but no conviction yet that there will be a shortage.