Low diesel inventories in the United States are “troublesome” as winter approaches. Will Canada be affected? – National

Diesel prices in Canada and the United States remain high as US fuel inventory levels are at their lowest levels in decades.

Last week, the US Energy Information Administration (EIA) reported that distillate inventories were at their lowest level since 2008. Distillate fuels include diesel and heating oil.

Diesel, which has been dubbed the “fuel that powers the economy” by experts who previously spoke to Global News, is used not only by drivers but also by industries such as agriculture, transportation and navigation.

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Diesel demand fluctuates throughout the year, but seeing U.S. distillate inventories at record highs for this time of year is “disturbing,” said Carol Montreuil, vice president of Canada East. and economics at the Canadian Fuels Association.

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“We are in the middle of an energy crisis,” he told Global News.

“US inventories are down … from the usual numbers we would see at this time of year at the start of the heating season.”

Why are diesel stocks low in the United States?

During the fall and winter, heating oil demand affects diesel fuel prices, the EIA said on its website. As the two fuels are produced at the same time, seasonal increases in fuel oil demand can also put pressure on the diesel market. In some areas, seasonal fluctuations in diesel demand from farmers can affect prices.

Throughout the year, oil producers struggled to meet unprecedented demand for fuel as the world began to emerge from COVID-19 lockdowns. Additionally, Russia’s war in Ukraine has shaken the global economy as Western countries move to punish Moscow with sanctions and move away from dependence on Russian oil, which has increased demand for oil. somewhere else.

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No price relief in sight for rising diesel costs

As Europe tries to get rid of Russian oil, North American countries sent distilled fuels like diesel and heating oil ahead of winter, Montreuil said. Several European nations stockpiled resources and rationed energy during the summer to ensure the supply of materials for the winter months.

“That’s why stocks in North America, Canada and the United States, are trending lower as we speak,” he said. Low distillate inventories also explain why US diesel prices are on average above US$5 per gallon.

Refineries, which are under severe pressure to meet demand, currently lack the additional capacity to produce enough diesel and fuel oil to relieve demand, Patrick De Haan, head of petroleum analysis at GasBuddy, said in an interview. to Global News last week.

“Diesel and fuel oil may have just entered their toughest time of the year,” he said.

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Canada is a major net producer and exporter of diesel, including to the United States, which has an integrated energy market, a Natural Resources Canada spokesperson told Global News in an email.

According to the most recent Statistics Canada data from July 2022, diesel inventory levels in Canada have remained stable over the past year, they added.

U.S. distillate fuel inventories rose 400,000 barrels last week and are about 19% below the five-year average for this time of year, the EIA said Wednesday.

“The economy, regardless of the specter of a recession or reduced strength in the economy, demand is still very high across all sectors of the economy, which means demand for diesel is high,” Montreuil said.

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“We are now entering the heating season where the demand for fuel oil will also be high.”

What impact will this have on Canadians?

Low diesel inventories in the United States are expected to continue to drive up prices for Canadian consumers.

“The fate of diesel and fuel oil could be a higher priced future,” De Haan said.

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On Wednesday, the average diesel price in Canada was $2.18 per liter, according to data provided by GasBuddy, compared to $1.43 per liter a year ago. Diesel prices soared throughout the year, at one point averaging $2.74 in Newfoundland and Labrador. Diesel prices at the pump have always been cheaper than gasoline.

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The highest diesel prices in Canada on November 2 were $2.44 per liter in Quebec, $2.40 per liter in Newfoundland and Prince Edward Island, $2.30 per liter in $ per liter in New Brunswick and $2.28 per liter in Nova Scotia. Diesel prices can vary in different parts of the country for a variety of reasons, including provincial taxes, Montreuil said. The Newfoundland government currently taxes 9.5 cents per liter of diesel, while Quebec charges 20 cents per liter of diesel.

High diesel prices will not only impact drivers, but also Canadians shopping for groceries, for example, because many goods are transported on diesel-powered vehicles, Montreuil said.

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The rising cost of diesel

In addition, Canadian homeowners who still use fuel oil will feel the effects. But the rise in prices will depend on a number of factors such as inflation and bans on the use of Russian oil, Montreuil said.

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High gasoline prices were a major driver of headline inflation earlier in the year. But as gasoline prices fell over the summer, the headline inflation figure also fell. However, with headline inflation still at 6.9% – well above the Bank of Canada’s 2% target – the central bank continued its rate hike path last week, which made borrowing even more expensive for Canadians.

If the economy were to slow as central banks try to tame inflation, energy demand could decline and diesel prices could fall, Montreuil said. But there are other factors at play that could influence the trajectory of diesel prices.

One of them is an impending European ban on most Russian oil imports that is expected to come into effect next month. In addition, a move by the United States, Canada and other G7 countries to impose a price cap on Russian oil that month could reduce supply if Moscow retaliates by refusing to ship to countries. and the companies that observe it.

In 2021, Russian oil production reached 10.5 million barrels per day, or 14% of total global supply, according to the International Energy Agency website.

Also, if a bad winter hits Europe and North America, energy demand could increase if consumption increases as people try to stay warm, Montreuil added.

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Those are “the three key variables to watch very closely,” he said.

“No one has a crystal ball to predict where these three variables are going. Not knowing the outcome of these three variables does not allow us to estimate where prices might be. Suffice to say, we are already in record territory.

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