The national average price of truck diesel at the pump waned during November and December, but industry insiders aren’t ready to take a victory lap due to lagging production.
During the first week of November, truck diesel hovered at $5.33 per gallon. It has steadily retreated to $4.59 per gallon for the week ending Dec. 19. That marks a significant decline from the high-water mark of $5.81 set in June.
Of the on-highway prices at the pump truckers routinely experience, only two regions were below the national average — the Gulf Coast ($4.20) and the Midwest ($4.47). California continued to experience the country’s highest fuel costs at $5.43 per gallon.
Sanctions on Russian oil purchases following its war with Ukraine resulted in the energy industry having a knee-jerk reaction. Prices spiked based on a perceived demand exceeding global supplies. Prices have slowly stabilized even though the conflict has escalated. Another round of sanctions, expected in February, could set off price hikes as the EU may be forced to compete with the U.S. to meet demands.
Aside from the volatility spikes caused by international sanctions, the hard data indicates U.S. diesel production has been a significant cost driver. David Messler, a reported 30-year oilfield veteran, posted a colorful and enlightening column on Oil Price in May. Diesel prices were surging en route to an all-time high one month later. He highlights why U.S. refinery production continues to plague truck diesel.
“In 2020 refining capacity declined by about 900K (barrels of oil per day,) due to a number of plant closures. Demand was muted for the first half of 2020, but surged back as the promise of a vaccine gave people confidence that stepping outside their door was not a death sentence. By the time May of 2022 rolled around, we had almost matched 2019 passenger volumes,” Messler writes.
He goes on to highlight Energy Information Administration (EIA) data that shows liquid fuel consumption essentially overtook demand heading into 2020 as the pandemic waned. Refineries never caught up to demand and several reportedly went offline for repairs. Crude refinement into petroleum products dropped from 19.1 million barrels daily on Jan. 1, 2020, to 18.1 by Jan. 1, 2021, according to the EIA. That capacity dropped again to 17.94 million barrels per day in 2022, just before the Russian-Ukraine war began.
“Despite our expectation that refinery utilization will be at or near the highest levels in the past five years, operable refinery capacity is about 900,000 barrels per day less than at the end of 2019, and as a result, we do not expect total refinery output of products to reach its highest level in the past five years,” the EIA reportedly stated.
The essential takeaway is that truck diesel may largely be in retreat because demand has recently dipped. Imports are in decline, agricultural products have been brought to market, and consumer spending has dropped off. The trajectory of diesel come spring may depend on getting refineries up to 2020 standards.
Sources: eia.gov, oilprice.com, ttnews.com
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