Diesel Position More Certain Than 2022

OMAHA (DTN) -- The diesel market has a much-improved outlook for those looking to buy compared to a year ago. The market, however, does still have its issues, mainly stocks well below historical levels and supply issues, which could cloud this outlook.

In the DTN Ag Summit Series last week, DTN Energy Editor and Product Manager Brian Milne said in his presentation the diesel outlook depends on several different factors. There are signs the market is in a much different situation compared to a year ago when war was breaking out in Ukraine.

DIESEL INVENTORIES BUILDING

Distillate inventories moved higher in February compared to January. This, in turn, pushed diesel futures to 13-month lows last week.

Milne said the market has seen a gradual rebuilding of diesel stocks. This is mainly because of reduced diesel demand thanks to a global slowdown in manufacturing and fewer freight movements.

"I can't offer advice (on buying diesel) but maybe a window has opened right now in which it could be a better time to buy diesel," Milne said.

U.S. diesel demand looks to be fairly weak in the first quarter of 2023. Analysts expect demand to be down 4% compared to last year in the first quarter.

Demand could pick up in the second and third quarters of the year, he said. Diesel demand could fall again in the fourth quarter of 2023.

SUPPLY RISKS?

The outlook on diesel prices in 2023 depends on several factors, among them the condition of the global economy.

Milne said if the economy would enter a recession, diesel demand could decrease. While certainly a possibility, he said he is not expecting this situation to occur.

There are supply risks in the outlook which could push diesel prices higher, he said.

Diesel stocks are rebuilding but continue to be below historical levels. Any major mishaps, such as a major refinery going offline for a period of time, could send diesel prices considerably higher.

Exon Mobile added some capacity to their facilities but a major refinery in the Houston area is closing down sometime in the year. These two events will most likely offset each other, Milne said.

"It appears we will have tight refinery capacity going forward this year," he said.

Milne said the emergence of renewable diesel could also influence prices.

The West Coast could be losing some diesel capacity in the near future, due to plants shutting down to produce renewable diesel, he said. While there are both federal and state incentives to change production practices, that area is short of refinery production.

Milne said this situation could keep diesel prices elevated in the West Coast and Rocky Mountain region. Some exports come from countries like Singapore but longer term this will be a new environment and it could keep pump prices higher.

Russ Quinn can be reached at Russ.Quinn@dtn.com

Follow him on Twitter @RussQuinnDTN

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