I have been warning about this for awhile but it’s getting traction now and I want to lay out what’s happening as simply as possible.
Wholesale diesel prices are soaring. In many places in the world, you’ll notice a huge spread opening up between diesel and gasoline.
Here’s why:
- Russian oil products are set to be banned from Europe in February and many flows are effectively banned already, leading to hoarding.
- In Europe, anyone who has the ability to switch from natural gas to diesel is doing it (power and industry mainly). Adding demand for diesel
- US exports are trying to fill the gap
- US refining capacity is maxed out
The result is that US inventories are being rapidly depleted. They’re at the lowest since 1951, when the US population was much lower and there was far less demand for transportation and industrial fuel.
Here’s how it could get much worse
1) Russia still provides Europe with about 40% of its diesel
When that’s cut off, there will be havoc.
2) The US could cut Europe off as well
A report today suggested that Biden will put a ban on product exports on the table in a speech tomorrow. That’s already been rumored, as Reuters reports that:
“[T]he White House has threatened petroleum refiners they could stop them from exporting fuels like gasoline and diesel unless domestic inventories rise.”
Obviously that would help the situation in the US but it would be dire for Europe and not exactly a signal of solidarity in the fight against Russia.
More at Bloomberg.
