Low inventories of distillate fuels, which comprise diesel fuel and heating oil, are expected to lead to high prices through early 2023, according to the U.S. Energy Information Administration (EIA). In October, U.S. inventories of distillate fuels fell to their lowest levels in any October since 1951.
The EIA released Tuesday (Nov. 8) the November Short-Term Energy Outlook that shows diesel prices will remain higher than $5 per gallon for the remainder of the year, and bills for homes that use heating oil will rise by 45% this winter season compared to the same period last year.
“Inventories are just one part of the supply equation for diesel and other distillates,” said EIA Administrator Joe DeCarolis. “The distillate fuels in storage aren’t the only source of diesel we have to keep trucks and trains moving, but lower-than-average storage levels will contribute to higher costs for diesel and for heating fuels through the winter.”
A slightly contracting U.S. economy is expected to reduce distillate prices in the first half of 2023 and contribute to an overall drop in U.S. energy consumption next year. S&P Global projects U.S. Real GDP will fall by 0.1% in 2023. It previously expected GDP to rise by 1.3% in 2023.
In early 2023, additional uncertainty is expected in the global marketplace for distillates and other fuels as the European Union plans to ban imports of petroleum products from Russia, according to the EIA.
Following are other highlights from the November Short-Term Energy Outlook:
- Electricity generation from natural gas and coal is expected to fall in 2023, while renewable energy is projected to be the only source to increase its share of the generation, DeCarolis said. Its share of U.S. electricity generation is projected to rise to 24% in 2023, from 22% in 2022.
- Amid expanding sanctions on Russia as a result of its invasion of Ukraine, Russia’s production of crude oil and petroleum products is projected to fall by 14% to 9.3 million barrels per day in 2023, from 2022, according to DeCarolis.
- In the fourth quarter of 2022 and the first quarter of 2023, the Henry Hub natural gas price is expected to be 17% lower than the EIA had projected in October. The EIA revised its forecast because U.S. natural gas storage levels have risen more than expected as winter approaches. The revision is unlikely to influence retail natural gas prices this winter because of the delay between changes in wholesale and retail prices for natural gas.