Is Diesel about to run dry?

16th March 2022 / United Kingdom

TruePublica Editor: I was talking to the CEO of a power company last week. He said he was surprised the lights had remained on as power supplies in Britain were very much ‘on the edge’ recently – and then went on to say that whilst unleaded fuel supplies for vehicles should be OK, diesel supplies are already dangerously low and soon there will be none. After all the transport systems that suck up huge quantities of diesel – ships, trucks, vans and industry – like agriculture, manufacturing, mining and so on – about 40 per cent of all cars in Britain run on diesel fuel. But how true is it that forecourts will run dry of diesel?

The International Energy Agency has warned that oil markets could be facing “the biggest supply crisis in decades” because of a drop in Russian supplies that threatens to keep prices high and depress economic growth.

About three million barrels per day of Russian oil production — roughly 3 per cent of the global market — could be halted from next month as sanctions bite and buyers shun supplies from Russia after its invasion of Ukraine.

This is “threatening to create a global oil supply shock” as only Saudi Arabia and the United Arab Emirates hold the spare capacity to immediately offset this shortfall and they are so far “showing no willingness to tap into their reserves”, the IEA said.

Leaving aside all the other reports we are currently reading – about supply-side shortages, inflationary pressures and so on – what we want to know is are the lights about to go out – and will there be fuel for our cars?

We know that as it stands – the global market is still facing a potential supply deficit of 700,000 barrels per day. Unless the Gulf countries (which Boris Johnson is currently wooing) come up trumps, then the likelihood of shortages is very high indeed.

The problem is that Russia is the world’s biggest exporter of crude. It’s where diesel in particular comes from.

The Times reports that – “The IEA was founded in 1974 as a forum for energy cooperation to ensure secure oil supplies after the 1973 oil embargo. Its work includes coordinating the release of emergency stocks to help ease prices in the event of a supply shock; earlier this month its members agreed to the largest ever stock release at more than 60 million barrels of crude.

Russia was exporting about five million barrels per day of crude oil and about three million barrels per day of refined oil products prior to the invasion, the IEA said. So far only America has banned Russian oil imports but “major oil companies, trading houses, shipping firms and banks have backed away from doing business with the country” as Russia has become “a pariah for many in the market”.

Interestingly, the IEA itself has made a prediction and said that three million barrels per day of Russian oil production could be “shut in” or halted from April, primarily reflecting a likely 2.5 million barrels per day drop in exports, although “losses could increase should restrictions or public condemnation escalate”.

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It sees crude exports falling by 1.5 million barrels per day and products by one million barrels per day.

Gulf countries hold a potential key to the problem. But as the IEA says – “The bloc has repeatedly spurned requests from the US and other oil-consuming countries for higher volumes to tame the oil price rally. Contributions from other countries will be marginal in the very near term, with industry and government stocks needed to fill the gap.”

The IEA warned that “surging energy and other commodity prices, along with financial and oil sanctions against Russia, are expected to depress world GDP and oil demand”.

However, it still predicts a shortage of a million barrels a day – and it’s diesel oil products that will be hit the most.

In the last 24 hours, news stories are starting to appear.

Reuters reports that – “Global stocks of diesel and other middle distillates have fallen to the lowest seasonal level since 2008 when similar shortages of these transport and industrial fuels helped to propel oil prices to a record high.“

Auto-Express reports that – “the spectre of diesel rationing could be on the cards within weeks, at least according to some in the oil industry. Analysts who were quizzed on 14 March by MPs from the Treasury select committee included Dr Amrita Sen from research company Energy Aspects. She said its experts thought the oil price could easily rise by 50 per cent and, without any intervention by the government in the form of reduced fuel duty, that could mean petrol prices going up to £2.40 a litre. “

These predictions may never happen, of course. But that CEO I was talking to just convinced me that diesel, in particular, is going to be a big problem in future. And if the lights go out – not much point in an electric vehicle is there if rationing kicks off.