- While Americans are reeling from gas station stickers, the oil market is in the worst crisis since the 1970s, analysts say.
- Diesel prices, which power much of the country’s industry, have risen by 76.5% over the past year.
- “Markets tell us there’s a shortage. That’s a headwind for inflation. We demand more diesel than anyone can supply.”
While Americans are reeling from gas station stickers, the oil market is in the worst crisis since the 1970s, analysts say.
The commodity drives much of the economy, including large trucks, agricultural equipment and industrial machinery. Prices in the US reached a record $ 5.56 per gallon, which is 76.5% more than a year ago.
“Markets tell us there’s a shortage,” said Insider Jim Mitchell, chief U.S. oil analyst at Refinitiv. “This is a tailwind for inflation. We demand more diesel than anyone can supply.”
In fact, supplies were dwindling. Nationwide, stocks of the most commonly used diesel have fallen by 43% since 2020 to their lowest level since 2014. In the Mid-Atlantic, stocks have fallen by 78% since 2020 to their lowest level in ten years. Other categories of diesel are experiencing steeper declines.
And the situation in New York is so dire that refinery and fuel mogul John Catsimatidis told Bloomberg, “I wouldn’t be surprised to see oil on the East Coast this summer.”
Conditions are worse around the world. In Europe, diesel prices rose by 88%. The International Energy Agency said on Thursday that global reserves of refined oil, including oil, had fallen to extremely low levels and that shortages were already limiting shipments across various African countries, as well as in Yemen, Sri Lanka and Mexico.
“There has been a significant demand as a result of the opening up of economies at home and globally,” said Rob Thummell, CEO of Tortoise Capital, to Insider. “Since supply is not able to keep up with high demand, we have not seen anything like it for decades The 70s.”
At that time, motorists formed long queues at gas stations to refuel on certain days, because a strict allocation system was used in response to the OPEC oil embargo. Mitchell of Refinitiv does not expect the government to order a fuel allocation now, but notes that high prices are one way the market is easing demand.
Nevertheless, the upcoming summer season will further increase demand, he added. And weakening pandemics are leading businesses to rework operations that now require more energy.
“Business activity is huge and the fuel for business activity is diesel,” Mitchell said.
Global oil market
On the supply side, some refineries were closed when demand was lower, which means that even if oil companies pump more oil, the remaining refineries cannot spew more oil at the same rate.
What’s more, some oil-producing regions, such as California, are working to turn refineries into biodiesel hubs, which Mitchell says is “fantastic for the future, but it’s a problem now.”
US oil supplies are also going overseas, including places like Mexico, Colombia, Brazil, Ecuador, he added.
The war in Ukraine is also tightening the availability of oil, Thummell explained, because Russian refineries are not pushing supplies to the European market due to bans and their own sanctions. According to Vortexa, compiled by Bloomberg, Russian ports in the Baltic and Black Seas shipped 3.32 million tonnes of diesel in April, 14% less than in February.
Diesel now costs so much that it hits what Mitchell calls “price rationing.” This could help lower prices. “Unfortunately, this also corresponds to the direction to and
The end of the Ukrainian war could cool prices. However, if the EU imposes an embargo on Russian oil, the diesel crisis could persist or worsen, with consequences that could affect all industries.
“We are looking at at least two years of higher food prices through agriculture and limited refining capacity in the world and the United States,” Mitchell said. “And we still demand more diesel than anyone can supply.”