Diesel Supply Down 8%: What Trucking Faces Next

Diesel supply is down 8% worldwide — and that’s the number trucking needs to watch. Andy Lipow of Lipow Oil Associates breaks down how Russian refinery attacks, Strait of Hormuz risk and Middle East disruptions are squeezing diesel markets while crude stays relatively softer. If you move freight, buy fuel or manage transportation costs, this is the energy outlook that matters. #Diesel #EnergyMarkets #TruckingEconomy

Simultaneous supply disruptions in Russia and the Middle East have removed approximately 8% of the world’s diesel fuel supply from the market, according to Andy Lipow, president of Lipow Oil Associates. The combined loss amounts to roughly 2 million barrels per day — 800,000 barrels per day from Russia and the remainder from the Middle East — a development with direct cost implications for carriers, shippers, and consumers across the U.S. freight network.

Ukrainian drone strikes have inflicted severe damage on Russian refining infrastructure, taking between 30% and 50% of Russia’s 6.5-million-barrel-per-day refining capacity offline or forcing it to cut back. Prior to the conflict, Russia exported 800,000 barrels per day of diesel fuel. A weekend attack alone involved 1,900 drones, and since a Trump administration announcement calling for a halt to strikes on energy infrastructure, Ukraine has struck three additional Russian refineries, including a large facility outside Moscow.

“It’s gonna take months, if not years, to repair this equipment, especially when Russia is under sanctions from the United States and Europe,” Lipow said.

In the Middle East, Houthi missile and drone strikes shut down Saudi Arabia’s East-West Pipeline, which had been carrying 2.8 million barrels per day of crude oil — running at full capacity of 7 million barrels per day during peak diversion — to five Red Sea refineries and delivering 650,000 to 800,000 barrels per day to European customers. Day 11 of that shutdown was noted during the interview. The Jizan refinery on the Red Sea, a 400,000-barrel-per-day Saudi facility producing more than 200,000 barrels per day of diesel, was also struck at the end of July. Separately, before tanker traffic was restricted through the Strait of Hormuz, diesel exports through that waterway ran at 1.2 million barrels per day.

For the U.S. freight industry, the supply crunch is translating directly into operating costs. California diesel prices were cited as nearing $8.50 a gallon, affecting truck and rail operations servicing the ports of Los Angeles and Long Beach, which handle 40% of U.S. container imports. WTI crude was quoted at $103 a barrel, with diesel pricing at the equivalent of $270 a barrel versus gasoline at $188 a barrel — a crack spread that reflects the acute tightness in distillate markets.

The inventory picture is particularly acute heading into winter. U.S. East Coast diesel stocks are at their lowest level for this time of year since 1982, when the Energy Information Administration began reporting those figures. Domestic refineries are already running near full capacity, leaving little room to boost output. Lipow warned that Northeast homeowners relying on heating oil should expect to pay close to $1,000 for a standard 150-gallon delivery, assuming diesel prices remain above $6.50 a gallon.

“The higher diesel prices are like a stealth tax because they get wrapped into the cost and delivery of all the goods and services that the consumer is purchasing,” Lipow said. European refiners, meanwhile, have scrambled to cover spot requirements for September and October, with Poland’s PKN Orlen purchasing 15 to 16 crude cargoes to replace contracted Aramco volumes. That buying pressure is pushing more eyes toward U.S. Gulf Coast crude exports, which have been running at 3 to 4 million barrels per day.

• Global diesel supply is down roughly 8%, with about 2 million barrels per day removed from markets due to Russian refinery damage and Middle East disruptions.
• U.S. East Coast diesel inventories are at their lowest seasonal level since 1982, with Northeast heating oil costs potentially nearing $1,000 per 150-gallon delivery this winter.
• Between 30% and 50% of Russia’s 6.5-million-barrel-per-day refining capacity is offline or curtailed, and repairs could take months to years due to ongoing drone strikes and sanctions.

This Summary is generated thanks to a transcription of the interview, for the full interview please enjoy the video above.