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Burning problems

TORONTO, Ont. - The price of diesel fuel continues its upward climb across Canada, and it appears that the situation will worsen with the onset of cold weather. The head of Canada's top petroleum indu...


TORONTO, Ont. – The price of diesel fuel continues its upward climb across Canada, and it appears that the situation will worsen with the onset of cold weather. The head of Canada’s top petroleum industry organization recently admitted for the first time that diesel consumers are likely in for a rough ride in the coming months because of low stockpiles of the fuel.

“U.S. inventories of middle distillates (the base product for both diesel fuel and home heating oil) are at a 25-year low, and people are understandably nervous about the winter,” said Bob Clapp, vice-president of the Ontario division of the Canadian Petroleum Products Institute. “It’s hard to read what’s going on in the market right now. It’s very volatile and lots of speculators are getting involved. It looks like we could be in for a tough winter ahead.”

That statement contrasts sharply with the dismissive approach to the inventory problem Clapp took in June, when he told Truck News “speculating about shortages at this point is not in the cards.”

While Clapp admitted then that North American inventories of middle distillates were well below normal for that time of year, he played down the threat of a diesel shortage this fall and winter. “Obviously, the objective of the petroleum industry is to go into next winter with inventory to meet customer demand,” he said. Clapp admits now that the industry has clearly not met that objective.

The seeds of the current fuel crunch were planted last spring, Clapp said, when the oil companies switched over from producing primarily diesel fuel and heating oil to producing gasoline for the summer driving season. Inventories of diesel and heating oil were already well below normal in the spring, and they have remained low ever since. That has created a simple “supply and demand” problem that has pushed up prices.

“The refineries have been going full blast to catch up, but the demand for gasoline has remained high, even after Labor Day,” Clapp explained.

But according to Ron Rosnak, an oil industry analyst with En-Pro International, an Oshawa, Ont.-based consulting company, no matter how hard the refineries work to replenish diesel and heating oil inventories, the shortfall may simply be too big to make up before the cold weather comes.

The real problem is the fact that most of the shortfall in U.S. middle distillate inventories exists in the Northeastern U.S., Rosnak said, “and that is where the demand will be.” As of Sept. 15 in this region, according to En-Pro numbers, middle distillate inventories stood at just over 20 million barrels, down 45 per cent from 37.7 million barrels for the same period in 1999.

So far, a large share of the price increases can be linked to market speculation, said Rosnak. “Commodities traders have been moving the price up in anticipation of a shortage … They are already overreacting to what could occur.”

For consumers, that has meant sharp increases at the pump. On Aug. 1, the wholesale “rack” price of a litre of low-sulfur diesel in Toronto was 33.7 cents, according to numbers from En-Pro. By Sept. 15, that had risen to 43.9 cents. The highest rack price posted during last February’s crunch was 44.7 cents. “I have never seen prices for diesel this high in August and September,” says Rosnak.

And forget all that talk about OPEC (Organization of Petroleum Exporting Countries) coming to the rescue with additional crude oil.

“Even if the extra production quotas are met, there is not enough tanker tonnage available to move this production about the world. We are looking at a major bottleneck for the next 24 months before new ships come on line,” said Michael Economides, an industry expert. In his mind, crude oil is simply not the problem, although North American governments and the big oil companies have worked hard to make it seem that way.

When asked if $1-per-litre diesel could become a reality in Canada, Economides readily agreed that that price was “not out of the question.” n


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