Diesel is the U.S. economy’s inflation canary: Kemp

Diesel is the U.S. economy’s inflation canary: Kemp

LONDON- Shortages of diesel and other distillate fuel oils have emerged as a key bottleneck in the oil market and will exert upward pressure on oil and fuel prices until the global economy moves onto a slower growth trajectory.

Distillate fuel oil has become the most cyclically sensitive part of the oil market, closely tracking the expansion and contraction of manufacturing activity and freight flows.

In the United States, consumption of middle distillates from the refining process increased at a compound annual rate of 1% between 1985 and 2019, according to the U.S. Energy Information Administration.

Distillate supplied as heating oil to homes, offices, schools and shops fell sharply in the wake of the two oil shocks of the 1970s and the price spike of 2008, which prompted widespread conversions of heating systems to gas.

But volumes supplied as diesel fuel to trucking firms, railroads, construction companies, marine operators and the oil and gas drilling industry increased more than enough to offset the loss of the heating market.

In 2019, most distillates were sold to highway users (67%), followed by railroads (6%) and farms (6%), with much smaller volumes sold as marine bunker fuel (3%), to industrial users (3%) and to oil and gas drillers