March 23, 2023

How low US diesel supply could affect Canada

Experts predict that the low supply of diesel in the U.S. could have ripple effects here in Canada in the form of higher prices.

Recent headlines in the American media pointed to an update released by the US Energy Information Administration last month, which showed that during the week of October 21, 2022, the US had a total of 25.9 days of distillate.

Oil analyst Dan McTeague, founder of, says the current U.S. shortage has mostly affected the eastern United States and is related to the shutdown of two major refineries in the Philadelphia area and one in Newfoundland.

“These three facilities represent a significant piece of the puzzle in terms of supply. And as we know, demand is exceptionally strong. That’s going to fuel our strong post-Covid economy,” he told by phone Wednesday. .

However, experts have pointed out that this does not mean that diesel supply will end during that period, as other refineries will continue to operate.

“It’s being added all the time every day, and of course it’s being subtracted every day based on demand,” Ian Lee, an assistant professor at Carleton University’s Sprott School of Business in Ottawa, told by phone. interview on Wednesday.

He used the analogy of a bathtub where the water is drained through the drain but still flows from the faucet.

However, the level of integration between the US and Canadian economies means that we will likely feel the effects in areas such as transportation, agriculture and heating, which in turn may affect prices on store shelves.

“So the point is that everything … points to diesel not running out, but the shortage is affecting the price and diesel prices are going up,” Lee said.

According to McTeague, now is the “calm before the storm” before winter arrives and demand for heating oil starts to pick up, which would cause a spike in diesel prices as both come from the same product.

“It’s likely that there will be significant upward pressure on diesel prices because it’s also a fuel used in furnace oil, and when the weather gets colder, all fuels … start to see a dramatic increase usually around this time of year until almost spring,” he said.

Figures from Natural Resources Canada show the average price of diesel rose to more than 200 cents a liter in the spring and most of the summer, before falling to about 180 or 190 cents a liter in August and September.

In recent weeks, the average price has returned to well over 200 cents.

An imbalance in supply and demand, caused in part by Russia’s invasion of Ukraine and the subsequent embargo on imports of Russian oil — Russia is a major oil producer — and a decline in refining capacity in recent years as demand collapsed during the COVID epidemic. -19 pandemic, everyone has been affected, Lee said.

Some older and inefficient refineries that also did not meet modern environmental standards have also closed, he said.

McTeague also noted that in early 2020, the International Maritime Organization mandated the use of ultra-low sulfur diesel for container ships, a type of diesel fuel that results in much lower harmful emissions but is more expensive to produce.

“A lot has changed. Diesel is not the bottom of the barrel stuff that we’ve been led to believe it was in the last 30, 40, 50 or 60 years. The fuel is the real workhorse of the world economy,” he said.

At the same time, building a new refinery requires a large amount of capital, with investments unrealized for decades and potentially at risk as governments pursue decarbonization policies.

“In the medium to long term, everyone understands that we’re going to reduce carbon dioxide, but we’re not living in the medium to long term – we’re living in the present,” he said.

“And right now there’s a shortage of refinery capacity, which feeds back into those shortages.”

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