- Oil prices could soar higher into 2023, but the diesel crisis still poses the greater threat, Energy Aspects' Amrita Sen said.
- Both oil and diesel stockpiles are hovering near record lows.
- The EIA warned earlier this month that the US had only a few weeks of reserve diesel supply.
Oil prices could climb back to $100 this year and trade above $120 in 2023 as a looming, unpredictable winter arrives while energy stockpiles shrink, according to top analyst Amrita Sen of Energy Aspects — but the diesel shortage is a more pressing issue.
"We are expecting [oil] prices to go towards $100 into the year end, and really trade into the $110s and $120s for most of next year," Sen told Bloomberg on Monday, adding that a cold winter poses the greatest upward pressure on prices.
Oil inventories stay extremely low, Sen noted, because many US refineries remain out of commission and the country isn't able to produce enough inventory, while ongoing French refinery strikes have added to supply pressures.
Nonetheless, Sen maintained that it's diesel that poses a greater threat. The Energy Information Administration reported that, as of October 14, the US had only 25 days remaining of reserve diesel supply – a near-record low that hasn't been hit since 2008.
"We just haven't built [diesel supplies] over the summer," Sen said. "And that's what we tend to use in the winter if it does get very, very cold."
Demand for diesel — which is relied on for transportation, shipping, construction, and farming — has recovered at a faster clip than gas and jet fuel. The shortage has been exacerbated by dwindling refining capacities and Western sanctions on Russian petroleum imports.
The US average for a gallon of diesel hit $5.34 in the week leading up to October 24, EIA data show. That's $1.62 higher than the same time last year, or about a 43% increase.
And once the European Union's sanctions on refined oil products kicks in in February 2023, competition for diesel supplies could increase further.
What's more, diesel prices for November deliveries have increased 33% for November and reserves for this time of year have not been this low since 1951, according to a Monday CNBC report citing EIA figures.
In Sen's view, it's possible the Biden Administration steps in with some type of intervention for the diesel crisis, such as imposing a supply quota before supplies can be exported.
National Economic Council Director Brian Deese recently told Bloomberg that diesel levels have fallen unacceptably low, and that all options remain possible to remedy the crisis.