Author: Philip J Palin

US diesel push and pull in context

Posted on by Philip J Palin

Here is a long excerpt from yesterday’s EIA Petroleum Status Report for last week.

U.S. crude oil refinery inputs averaged 16.6 million barrels per day during the week ending December 2, 2022 which was 53,000 barrels per day less than the previous week’s average. Refineries operated at 95.5% of their operable capacity last week. Gasoline production decreased last week, averaging 9.1 million barrels per day. Distillate fuel production increased last week, still averaging 5.3 million barrels per day. U.S. crude oil imports averaged 6.0 million barrels per day last week, decreased by 24,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.2 million barrels per day, 4.1% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 519,000 barrels per day, and distillate fuel imports averaged 372,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.2 million barrels from the previous week. At 413.9 million barrels, U.S. crude oil inventories are about 9% below the five year average for this time of year. Total motor gasoline inventories increased by 5.3 million barrels from last week and are about 3% below the five year average for this time of year. Finished gasoline inventories decreased, while blending components inventories increased last week. Distillate fuel inventories increased by 6.2 million barrels last week and are about 9% below the five year average for this time of year. Propane/propylene inventories decreased by 1.0 million barrels from last week and are 14% above the five year average for this time of year. Total commercial petroleum inventories increased by 5.9 million barrels last week. Total products supplied over the last four-week period averaged 20.1 million barrels a day, down by 3.8% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 8.4 million barrels a day, down by 7.1% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels a day over the past four weeks, down by 9.8% from the same period last year. Jet fuel product supplied was up 7.5% compared with the same four-week period last year.

Given distance from sources and constrained channels between demand and supply, I give particular attention to diesel stocks for New England and the mid-Atlantic (PADD 1A and 1B). For all of PADD 1 (Atlantic Coast) inventories are back inside the five year range. The mid-Atlantic is a bit better off than New England (see chart below). Demand and prices have fallen (more). As long as channels are not seriously disrupted (e.g., Colonial Pipeline) and production persists (for how long at over 90 percent?), this will do. Our blood pressure is uncomfortably high, but we can keep trucking…

Quick fitness update

Posted on by Philip J Palin

[Update Below] Twelve days ago I set out five vital signs to regularly monitor. Here’s a very quick update:

Southern Hemisphere Crop Production: Drought is casting doubt on Argentina’s corn crop as well as Brazil’s soybeans. Australian wheat is mixed, but record yields in the west seem to be making up for flooded fields in the east. (More) Indonesia’s palm oil inventories continue to be in good shape despite higher demand and continued price advantages compared to sunflower and soy oils.

Global Diesel Demand, Production, and Price: According to the IEA November update:

Diesel prices and cracks (differential to crude oil price) surged to record levels in October, and are now 70% and 425% higher, respectively, than year-ago levels while benchmark Brent prices increased just 11% during the same period. Distillate inventories are at multi-decade lows. French refinery strikes last month and upcoming embargoes propelled diesel prices in Rotterdam, Europe’s main trading hub, to more than $80/bbl above North Sea Dated at one point, before easing somewhat. Diesel premiums in the United States have also soared ahead of the winter heating season in the Northeast.

But January futures contracts for New York Harbor have seen significant price declines since Halloween. More details on US diesel inventories will be released in a few hours. I plan to give these results more attention tomorrow.

Covid Hospitalizations (and Mutations): In much of the world, the number of hospitalized patients with covid is less than half that of this time last year (recent increases notwithstanding). There seems to be a meaningful shift in China’s covid zero policy. If this policy shift persists there are potentially significant implications, both epidemiologically and economically (including for diesel demand).

China’s Export Volume and Value: Reuters reports: “China’s exports and imports likely contracted further in November due to weakening global demand, production disruptions and waning demand at home amid widespread pandemic controls, a Reuters poll showed on Monday. Data for November are expected to show a 3.5% fall in outbound shipments from a year earlier, after October’s figures were down an annual 0.3%, according to the median forecast of 28 economists in the poll. That would mark the worst performance since May 2020.”

North American Electricity Demand and Supply: Late autumn demand has been seasonal and within current generating capacity. The price per kilowatt hour has increased. (More)

While the original conceit for these vital signs relates to human health, the outcomes above seem better suited for a weather analogy. Taken together I perceive seasonal to warmer temperatures with clouds, chance of spotty precipitation, and an uncertain mid-term forecast.

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December 9 Update: Bloomberg reporters offer their own perspective on what is ahead as China backs-away from ultra-covid-zero:

The (infection) curves have been consistent all over the world, rising exponentially for about three to four weeks and then falling at a similar rate. The experts I’ve talked to don’t expect anything different in China. It’s pretty clear that a month from now will be near the peak… One data set, from the London-based research firm Airfinity, has a range of 1.3 million to 2.1 million (fatalities). Officials at the Institute for Health Metrics say that’s much too high. They are coming out with new numbers in the next few days.  I don’t see a scenario where China avoids the devastation we’ve seen in other places. Given its size, it’s likely to be scary. 

CNBC reports, “U.S. manufacturing orders in China are down 40 percent, according to the latest CNBC Supply Chain Heat Map data. As a result of the decrease in orders, Worldwide Logistics tells CNBC it is expecting Chinese factories to shut down two weeks earlier than usual for the Chinese Lunar New Year — Chinese New Year’s Eve falls on Jan. 21 next year. The seven days after the holiday are considered a national holiday.”

S&P Global reports, “Diesel and gasoil stocks in the Northwest European hub of Amsterdam-Rotterdam-Antwerp sat at 1.716 million mt, 24.9% below the five-year average late November and their lowest since 2008 for the time of year, data from Insights Global showed. Inventories elsewhere have faced a similar fate as demand outstrips supply, with diesel stocks across the Atlantic around 37% below the five-year average at the end of November and middle distillate stocks in Singapore around levels last seen in 2004 for this time of year, US Energy Information Administration and Enterprise Singapore data showed… US Gulf Coast exports of ULSD to Europe surged 117% on the month to 484,200 mt in September, before crashing to 284,000 mt in October and rising to about 418,800 mt in November…”

According to the USDA and Bloomberg, “Wheat posted a fifth straight week of losses as prospects brighten for getting global grain shipments out of the war-stressed Black Sea. The US Department of Agriculture raised its outlook for world wheat trade in part on higher exports from Ukraine and Russia, the agency said Friday in its monthly World Agricultural Supply and Demand Estimates.”

Bloomberg on fossil fuel flows

Posted on by Philip J Palin

Yesterday Kevin Book provided a wonderfully concise explanation of recent conditions. Even with breaking news regarding Russia’s oil flows and potential unleashing of (some) domestic demand in China, the explanation has held for more than twenty-four hours, which should not be taken for granted. Selecting the image below will take you to the Bloomberg website. Bloomberg defaults to silent, so turn on website’s sound. Please advance to about 1:08:20.

October personal consumption of food

Posted on by Philip J Palin

[Update Below] According to the US Department of Commerce, Bureau of Economic Analysis, “Personal income increased $155.3 billion, or 0.7 percent at a monthly rate, while consumer spending increased $147.9 billion, or 0.8 percent, in October. The increase in personal income primarily reflected increases in compensation and personal current transfer receipts. The personal saving rate (that is, personal saving as a percentage of disposable personal income) was 2.3 percent in October, compared with 2.4 percent in September.”

Given my focus on supply chains — the real movement of real stuff — for several months I have been giving close attention to US inflation-adjusted expenditures on Food-At-Home (FAH) (see chart below).

The pandemic prompted considerably higher demand for FAH, mostly purchased from various categories of grocery stores. This sustained increase made enormous sense given the significantly reduced expenditures on Food-Away-From-Home. But I have been surprised how this increase persisted even after US consumers began to expend as much (or more) than ever at restaurants, fast food outlets, and so on in Spring 2021. As shown below, Food-At-Home expenditures remained about 8 percent higher than pre-pandemic even when Americans resumed eating out. This significant and surprising (to me) sustained shift above the previous demand trend is a big part of persisting supply chain challenges in the US grocery industry.

Six months ago, based on long-term real personal expenditures on Food-At-Home, I decided that a combination of inflation, more competition for spending, reduced personal savings, and, perhaps, even some satiation would result in FAH expenditures falling to something close to $1,010 billion to $1020 billion per month of chained 2012 dollars. In June I announced a “bet” on how expenditures would adapt and adjust over the summer.

So, despite nine months of unfulfilled anticipation (or because of it), I hypothesize that between May and September we will see food-at-home real consumption gradually decline by another seven to ten percent and then flatten or incrementally increase. I hypothesize that durable goods and services will begin to show slopes similar to 2022 food consumption. I also hypothesize a more rapid rate-of-change than that for food between last November and April. These are deniable hypotheses. I am not sure. It does seem plausible. If this happens, demand and supply will be closer to equilibrium. [Excerpt from June 26 blog]

I was way off. The decline in real food expenditures from May to the end of September was a scant 1.4 percent… and real expenditures on food for October were almost a billion (real) dollars more than May. After five flat months, real durable goods expenditures increased in October. Real services expenditures have continued along the softly increasing curve assumed in summer 2021.

Why was I wrong? As usual, there are so many possibilities. Let us count the ways. But today I am focusing on one fundamental factor that I expect has had high-proportional impact: real personal income (see second chart below) is even more above its pre-pandemic trend than food expenditures. Yet another example of how comparative change and effectual demand matter.

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December 2 Update: This morning’s payrolls report from the Bureau of Labor Statistics also suggests why food purchases have continued to be so robust. Despite some high-profile lay-offs, the overall number of new jobs created in November far exceeded most expectations. (See chart below.) Employment in food manufacturing increased 3.4 percent. Employment in retail food increased 4.5 percent.

Chicken or egg, food or flow, push or pull?

Posted on by Philip J Palin

In the United Kingdom eggs are in short supply. Culling flocks due to avian flu has reduced upstream production. There are social and regulatory constraints on imports (more and more). Avian flu has also reduced stocks of broilers and egg laying hens on the continent (France and Netherlands (US too)). Constrained supply and higher production/transportation costs (often energy-related) have caused prices to increase by half since earlier this year, discombobulating demand in a manner that disrupts supply. It is complicated.

This is not, however, as bad as some were predicting last Spring. At that point the scope and scale of the European energy crisis plus drought projections plus the risk of a wider war prompted some plausible worst-case thinking of wide-spread cuts in core food production, processing, and freight movement. Brexit-related frictions were expected to amplify British consequences (as they have).

While far from a best case, over the last six months adaptations in European energy flows have achieved higher inventories and much more flexible (effective) velocity than I expected. Agricultural production has been uneven, more costly, and bulk transport often delayed, but European food resources are diverse and imports have been available to fill gaps. Freight players and processors have — so far — demonstrated considerable agility. Volumes have been sufficient to fulfill European food demand in the vast majority of places for the vast majority of products, the vast majority of the time.

As usual, this success has many sources. But demand pull and open flows have been fundamental. If these two factors had not been available or more seriously constrained, other sources could not have delivered the energy and food needed by 700 million plus Europeans. Spending on energy has soared (here and here and here and here). EU household utility costs are up almost 40 percent compared to decade-plus averages. In October the EU-wide inflation rate for food was over 17 percent (core inflation was just under 6 percent). Through September 2022 LNG imports to the EU already equaled more than the previous full-year record in 2019. During the first half of 2022 total EU food imports increased by one-third. Increased pull has motivated increased push.

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In December 2016 I participated in a global consultation on mass care in case of catastrophe — or at least near-catastrophes. The consultation was hosted in Berlin and focused on food flows. One of the principal discoveries was wide-spread lack of understanding related to midstream aspects of the food supply chain. Expertise was readily available for upstream food production, imports, and exports. There was also considerable shared familiarity with consumer-facing retail. But flows in-between were often a mystery.

Nonetheless, after the Berlin consultation I wrote my German hosts, “Given the structure of European food flows and the character of your risk vectors, the only catastrophic potential I recognize is the intentional targeted destruction of war.” This was not a prediction. It was, in fact, supposed to be reassuring.

In February 2019 there was a loosely related Copenhagen consultation on post-Brexit food flows for (mostly) Northern Europe. The lack of midstream awareness persisted, but there was much more sensitivity to how regulatory constraints (e.g., customs processes) can create physical chokepoints. One of our Dutch colleagues noted, “given volumes required, very marginal constraints on flow can have enormous market consequences for volume, velocity and price, spontaneously generating unwanted chokepoints.”

Late this Spring some of the same folks and many new colleagues gathered around Zoom screens to think through European food flows for the soon to arrive war-torn winter. Despite (or perhaps because of) the earlier work, there was considerable anxiety. But by late September when we gathered face-to-face there was much more confidence. Our Dutch colleague was now hosting. His closing remarks included, “perhaps we now better understand the limitations of our understanding and share a deeper appreciation for the ‘invisible hand’ of market pricing to prioritize what is really needed.”

It remains a hypothesis requiring more testing — I can still imagine proving the null hypothesis. We are still a long ways from a proven theory. But there is accumulating evidence for a principle of good practice that gives priority to facilitating pull.

Five vital signs

Posted on by Philip J Palin

The fitness of global flows is threatened. Pre-pandemic stresses have mostly persisted, especially related to climate change and terms of trade. The war has imposed further constraints, especially on energy and food (more and more). Demand is certainly not declining. As winter descends on the Northern Hemisphere current constraints will tighten — especially in Europe but there will be related global effects.

The war in Ukraine, Europe’s energy and economic conditions, global inflation, East Asian outputs, and a broad range of US social, economic, and political behaviors are easy to access. You will do so on your own. I will do so here as well. But to supplement these usual suspects, I will give ongoing attention to five upstream factors that should — especially taken together — provide a finer sense of velocity — both near-term and mid-term, say through June 2023.

  1. Southern Hemisphere Agricultural Production with particular attention to Argentina’s corn crop, Brazil’s soybean exports, Australia’s wheat crop (more), and Indonesia’s palm oil output.
  2. Global Diesel Demand, Production, and Price from IEA and EIA monthly updates plus front-month futures at New York Harbor and Amsterdam-Rotterdam-Antwerp. (More and more)
  3. Covid Hospitalizations (and mutations) according to OurWorldinData and whatever I can find and discern on China. To be explicit, I am concerned that as China tries to exit Covid Zero there will be a wave of new infections and variants (more and more).
  4. Chinese Export Volumes and Value can be more accurately tracked than its domestic economic outcomes (more and more). I will especially look for connections between vital signs 3 and 4.
  5. North American Electricity Demand and Supply is more precarious (and pricey) that previously. The worse this winter’s weather, the more cause for worry. Here’s the November 17 NERC Winter Reliability Assessment.

Especially poor performance by any one vital sign is plenty of cause for concern. Two simultaneous problems are more than double-trouble. Three at once is not a charm.

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Recently Eric Holdeman interviewed me for the DisasterZone Podcast. Similar to what’s outlined above, we covered a wide waterfront. You can listen here.

Food flows and food security

Posted on by Philip J Palin

[Update Below] On Wednesday the G20 Summit in Indonesia concluded with a communique that includes:

Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy – constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks. 

On Thursday the Black Sea Initiative that facilitates food flows from three of Ukraine’s ports was extended for 120 days. (More and more and see summary far below.)

Bali and at the Black Sea are linked, more directly than you might think.

Ukraine is typically the source for a significant portion of global food flows — especially corn, wheat, and sunflower oil. Ukraine’s food flows have been disrupted by Russia’s invasion. Early in the war Russian naval attacks — and anticipated amphibious operations — trapped ships in several ports, damaged warehouses, docks, loading facilities, and vessels, and excluded commercial operations in the northwest Black Sea, north of the Danube Delta. This blog did not anticipate any of Ukraine’s ports being reopened until hostilities concluded.

On July 27 Turkey and the United Nations brokered a temporary deal. I did not expect the agreement to stick. But it has — so far. By mid-August a slow flow of foodstuffs had restarted. Several ports remain closed. Sources and channels are profoundly constrained. But according to the United Nations, “As of 17 November, the total tonnage of grain and other foodstuffs exported from the three Ukrainian ports is 11,186,228 million metric tons. A total of 941 voyages (470 inbound and 471 outbound) have been enabled so far.” This flow has been fundamental to sufficient global volumes and some very rough semblance of affordability.

Food security is an acute concern in the Horn of Africa, across the straits in Yemen, all along the Sahel, and in many other places as a result of local crop failures and/or inability to pay in dollars (more and more). Food security is a core long-term strategy for several nations, among them the People’s Republic of China.

S&P Global recently wrote, “In recent years, China’s astounding growth in commodity consumption has outpaced its domestic supplies, compelling the government to import food commodities in large volumes. The Xi administration acknowledges the dire need to raise agricultural imports to satisfy domestic demand. But all that dependency on imports is leaving China vulnerable in its quest to become a superpower… China has been importing corn primarily from the US and Ukraine. However, supply from these origins have been uncertain due to geopolitical tensions.”

This is not where Xi wants to be. So, Xi was ready to agree when the G20 draft communique offered:

We support the international efforts to keep food supply chains functioning under challenging circumstances. We are committed to addressing food insecurity by ensuring accessibility, affordability, and sustainability of food and food products for those in needs, particularly in developing countries and least developed countries. We reiterate our support for open, transparent, inclusive, predictable, and non-discriminatory, rules-based agricultural trade based on WTO rules. We highlight the importance of enhancing market predictability, minimizing distortions, increasing business confidence, and allowing agriculture and food trade to flow smoothly. We reaffirm the need to update global agricultural food trade rules and to facilitate trade in agricultural and food products, as well as the importance of not imposing export prohibitions or restrictions on food and fertilizers in a manner inconsistent with relevant WTO provisions. We are committed to sustained supply, in part based on local food sources, as well as diversified production of food and fertilizers to support the most vulnerable from the disruptions in food trade supply chain. We will avoid adversely impacting food security deliberately. We commit to facilitate humanitarian supplies for ensuring access to food in emergency situations and call on UN Member States and all relevant stakeholders with available resources to provide in-kind donations and resources to support countries most affected by the food crisis, as required and based on assessed needs by governments of affected countries. We continue to support the carve out of humanitarian activities from sanctions and call on all nations to support this aim, including through current efforts at the UN. We will continue to closely monitor the state of global food security and nutrition.

While at the G20, President Xi said that China, “resolutely opposes attempts to politicize food and energy issues or use them as tools and weapons.” (More and more)

Following release of the surprisingly strong Bali declaration, one insider was quoted, “The Indonesians were smart. They started on something everyone could agree on, which was food security, and then built on that…” If food security is fundamental, there is every motivation to acknowledge what is happening to Ukraine’s grain and support continued flows. After several days of negotiations, it was clear to almost everyone — even the Russian Foreign Minister at Bali — where the G20 would land on Wednesday. This was instrumental to deciding where Turkey, the United Nations, Russia, and Ukraine would land on Thursday.

Supply Chain Resilience is a policy, strategy, and practice to maximize continued flows of demand and supply under severe duress. Supply Chain Resilience focuses on natural, accidental, and intentional disruption of flows. Intentional government action is a recurring source of various impediments ranging from delivery curfews to weight restrictions to public health interventions to bombing port facilities. Government actions usually have a purpose only indirectly related to supply chains — and the flow impediments caused by these intentional acts are often unintended.

Our settings are seldom as dramatic as Bali and the Black Sea, but Supply Chain Resilience often involves unveiling heretofore hidden connections between flows and policy. Reducing impediments and releasing flows often requires resolving heretofore hidden conflicts between policies. Supply Chain Resilience often depends on key decision-makers (both private and public) recognizing that flows of water, food, fuel, pharmaceuticals, and other critical freight are priorities that should not be unintentionally constrained — especially in a crisis.

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Following is an infographic developed by S&P Global and published on November 16.

November 24 Update: S&P Global reports, “The first shipment of Brazilian corn has started its voyage to Guangzhou, China after MV Star Iris, laden with 67,000 mt of corn, sailed from the Brazilian port of Santos at about 5 pm local time Nov. 23… Currently, China imports corn from the US and Ukraine to meet its domestic demand on top of its local production. China’s long-awaited participation in the Brazilian corn market is expected to shift global trade flows for corn…”

November 29 Update: S&P Global reports, “Corn buyers in Europe are growing concerned that their competitively priced supplies from Brazil will dry up as China begins to buy from there too.”

Streams flowing slow and shallow

Posted on by Philip J Palin

For the week ending November 12, barged grain movement in the United States was down one-third from last year at this time. Oceangoing grain cargoes from US Gulf Coast ports are down roughly 40 percent compared to 2021.

Upstream sources (in this context literal as well as figurative) are not nearly as sparse. It has been a spotty and in some places tough harvest, but the late-season forecast for US corn production is down eight percent from 2021 and soybeans are down less than four percent.

This year’s drought across the vast Missouri, Mississippi, and Ohio rivers watersheds certainly constrained this season’s US agricultural production. The secondary impact on riverine freight has been the worst since at least 1988. Bloomberg recently put these slow flows in global perspective:

This year has seen rivers across the US, Europe and China shrinking amid scarce rains and high heat. The vaunted Colorado River, caught in the Southwest’s worst drought in 1,200 years, has dwindled to the point where its major hydroelectric dams are in danger of shutting down, threatening the booming desert cities that rely on it. In Argentina, the Parana River fell to its lowest levels in 77 years, crimping crop exports down the waterway, while Europe’s Rhine and Danube almost saw traffic halt. And even as a powerful monsoon season flooded Pakistan, drought in China dropped the Yangtze River low enough that glittering Shanghai had to turn off lights to save power.

From mid-October to mid-November river levels across the interior United States were historically low. For most of thirty days, the water level at Memphis was eight to more than ten feet below median. The Mississippi River is highly engineered. But it has required constant dredging to keep a reduced number of lighter-loaded barges moving downstream

Over the last several days lower Mississippi River water levels have recovered slightly. This morning the river gage at Memphis is one-foot below median, compared to over eight-feet negative just last week. The number of grain barges unloaded at New Orleans is up over one-third compared to the first week in November. Slowly we turn…

It will, however, take considerable time — and continued precipitation — to decongest the long queues of barges that have accumulated during the low drafts and slow flows of the last several weeks (see map below). Earlier this month industry insiders pointed to several queues of “over 100 vessels towing over 2,000 barges waiting to pass through different points along the river.” Starting tomorrow, November 19, managed discharges on the Missouri River will begin to be reduced. The extended forecast for precipitation across several critical watersheds is especially uncertain.

Downstream demand for grain is persistent… even insistent. Upstream production can vary dramatically by season and region, but this year global harvests have not significantly reduced overall food availability. Midstream distribution has, however, been disrupted and constrained (not just in the United States). Distribution constraints increase costs (more). In just the last week, the barge freight rate for some portions of the interior United States has been close to 150 percent higher than the three-year-average. Increased costs are reflected in increased consumer-facing prices which can seriously constrain affordability. (Please see the Global Food Security Index.)

In the case of the Greater Mississippi River watershed, recent distribution constraints have had mostly natural causes. Accidental and intentional impediments have also occurred, but these have had mostly incidental rather than systemic impacts. Right now there is a fair chance that natural and supply chain flows will recover enough to feed those able to buy (and pay those growing, processing, and transporting). But it is worth noting how we have been operating so close-to-the-edge of several impervious impediments.

US maritime inflows

Posted on by Philip J Palin

[Update Below] Over the last year, inbound maritime flows to the United States have slowed and dispersed (see chart below). This adaptation seems to be accelerating in the current quarter.

Recently declining demand for imports is behind the slowdown (see second chart below). The dispersion is part of a long-term trend. Demand-pull is usually fickle. Supply-push is inclined to be stubborn.

According to S&P Global, even as West Coast ports have experienced declining volumes, “South Carolina Ports handled 256,879 TEU during October… up 9% against the year. Loaded imports came to 121,305 TEU, up just under 13% on the year. October was the third busiest month in the port’s history. Elsewhere, the Port of New York/New Jersey moved 842,219 containers in September, over 130,000 more than the Port of Los Angeles during the same month.” (More and more.)

Dispersion arguably began in 2016 when new and larger locks allowed for passage of much bigger container ships to and from Asia through the Panama Canal. Pandemic pressures have accelerated use of alternatives to the Ports of Los Angeles and Long Beach (pre-pandemic it was typical for more than 40 percent of US container imports to be received at LA/LB). Intense congestion at LA/LB encouraged diversion of flow to ports other than San Pedro Bay. The ongoing threat of labor action at all US West Coast ports has reinforced this choice. A possible US rail strike would quickly cause congestion at just about every US container port, but West Coast inbound is especially dependent on long-distance rail to distribute East Bound flows.

So… while it took awhile to find, schedule, and coordinate vessels, drayage, warehousing, and surface transportation, over the last year-plus many US importers have spread their risk. Now that congestion is gone, LA/LB can reassert its innate proximity advantage for East Asian sources. Once the risk of labor action is resolved, US West Coast ports will reclaim some proportion of total flows. But the newly expanded US Gulf and East Coast channels will not be abandoned. They also have an innate comparative advantage in their proximity to many million US consumers.

[Soon to come: US Outbound Flows… especially via the Mississippi River]

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November 22 Update: Bloomberg reports: “Ports on the US West Coast could permanently lose as much as 10% of the seaborne cargo that has been diverted to the Atlantic coast amid logistics bottlenecks, regulatory headwinds and labor uncertainty.”

“Competition for non-Russian diesel barrels will be fierce.”

Posted on by Philip J Palin

[Updates below] The International Energy Agency’s November Oil Market Report summarizes recent market behavior:

Diesel prices and cracks (differential to crude oil price) surged to record levels in October, and are now 70% and 425% higher, respectively, than year-ago levels while benchmark Brent prices increased just 11% during the same period. Distillate inventories are at multi-decade lows. French refinery strikes last month and upcoming embargoes propelled diesel prices in Rotterdam, Europe’s main trading hub, to more than $80/bbl above North Sea Dated at one point, before easing somewhat. Diesel premiums in the United States have also soared ahead of the winter heating season in the Northeast.

Diesel is not the only petroleum product with shallow inventories. Based on the IEA report, Bloomberg outlines, “Combined government and industry oil stockpiles in developed nations have fallen below 4 billion barrels for the first time in 18 years, having declined by 177 million barrels this year…”

Looking ahead, IEA anticipates more global diesel (and other petroleum) production capacity by the close of 2023 and, probably, flat or lower demand between now and then (on the back of high prices and economic slow-downs). The balance between demand and supply is, however, sufficiently tight and near-term push options are sufficiently constrained that outbreaks of regional disequilibria would not be surprising.

Tomorrow, November 16, we will get EIA’s update on US diesel inventories.

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November 17 Update: I will call the weekly change in US diesel stocks non-material: making moves that do not change our essential condition. Total national distillate inventories increased from an estimated 106,263,000 barrels to 107,383,000 barrels. See historical moves and comparisons in chart below.

Regional inventories are probably what will matter most in a pinch. The Central Atlantic (PADD 1B) is especially tight. Local refining capacity is anemic and it is a long distance from Gulf Coast refining capacity or European sources discombobulated by the uncertainties of war-time winter. But no US region has average, much less above-average diesel stocks. Many — all? — skate the edge of a supply chasm in case of any significant loss of current capacity resulting from natural, accidental, or intentional impediments.

Based on EIA data, S&P Global highlights strong US demand, “Robust refinery demand contributed to the draws. Nationwide refinery utilization climbed for a third straight week, rising 0.8 percentage point to 92.9% of capacity, while refinery net crude inputs edged up to 16.15 million b/d, an eight-week high. At those levels, utilization and net crude demand were 5.4% and 2.6% above their respective five-year averages.”

About midnight the Financial Times reported (in a helpful overview),”The contraction of diesel stocks comes amid steady demand and rising exports to Europe to offset now-sanctioned supplies from Russia. Pressure on US stocks is expected to worsen in the winter, when European sanctions on seaborne Russian crude oil tighten in December and are extended to refined petroleum products in February.”

November 21 Update: Reuters reports, “The European Union will ban Russian oil product imports, on which it relies heavily for its diesel, by Feb. 5. That will follow a ban on Russian crude taking effect in December. Russian diesel loadings destined for the Amsterdam-Rotterdam-Antwerp (ARA) storage region rose to 215,000 bpd from Nov. 1 to Nov. 12, up by 126% from October.”

November 22 Update: Bloomberg delivers an excellent update and overview regarding the global diesel market. Two paragraphs highlight prior reports by this blog:

Within the next few months, almost every region on the planet will face the danger of a diesel shortage at a time when supply crunches in nearly all the world’s energy markets have worsened inflation and stifled growth...

To be sure, prolonged, diesel shortages throughout the US are improbable since the country is a net exporter of the fuel. But localized outages and price spikes are likely to become more frequent, especially on the East Coast, where a dearth of pipelines creates huge bottlenecks. The region is heavily reliant on the Colonial pipeline that’s often full…