December 7, 2022

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Diesel prices, price hike |  A new recession for more than a million Norwegian car owners

Diesel prices, price hike | A new recession for more than a million Norwegian car owners

The newspaper online: According to Statistics Norway, the passenger car fleet in Norway in 2021 consisted of up to 1.2 million diesel cars, compared to nearly 900 thousand petrol cars and 460 thousand electric cars.

For about a year we’ve had to get used to the fact that diesel under 20 kroner is “cheap”, and at the time of writing the price fluctuates between NOK 21 and 24, while the price of petrol now regularly drops below 20 Norwegian kroner.

There are a few bright spots in store for diesel vehicle owners in the country.

Gasoline prices have now stabilized at a lower level than diesel prices, mainly because oil prices have fallen from their highs of $90 a barrel. to me The latest market report from the International Energy Agency (IEA) However, there is little reason to be optimistic about the diesel pumps in the coming months.

New record prices in October

Diesel prices and “cracks” (the difference between the price of crude oil and the price of refined products) rose to new highs in October, and are now 70 and 425 percent higher, respectively, than they were at the same time last year, according to the International Energy Agency. in the report. At the same time, the price of North Sea oil (Brent) rose by only 11 percent in the same period.

The reasons for this are complex:

  • Distillate depots are more emptied than they have been in many decades
  • Strikes hit French refineries in October and the boycott hit diesel prices hard in Rotterdam, which is the main European trading center for diesel.
  • Diesel prices also rose sharply in the United States in anticipation of the winter season in the Northeast
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The effect is triple negative: extreme diesel prices are driving inflation and creating increasing pressure on the global economy and on demand for oil. The International Energy Agency believes oil demand growth will fall from 2.1 million barrels per day this year to 1.6 million barrels per day in 2023.

lower capacity

In the case of diesel, demand growth falls much further: from 1.5 million barrels per day in 2021 to 400,000 barrels per day in 2022. Increased pressure from higher prices and a weaker economy will lead to weaker demand growth in 2023, according to estimates from the International Energy Agency.

Even before the Ukraine war, the diesel market was characterized by significantly low refining capacity. In recent months, capacity has been added that partially replaces Russian refineries, but capacity is still less than a year ago, driving up prices.

But really behind the mirror is the ultimate effect of the Russian oil boycott – most of the significant refining capacity supplying the West was Russian.

Now comes the interruption effect

The full impact will come in December and February respectively, the International Energy Agency estimates:

In October, EU countries’ imports of Russian oil were reduced by 1.1 million barrels per day to 1.4 million barrels per day. Diesel fell by 50,000 bpd to 560,000 bpd.

When the complete boycott of crude oil and petroleum products occurs in December and February respectively, an additional 1.1 million barrels of crude oil per day and 1 million barrels of diesel, naphtha and fuel oil must be replaced.

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There will be a battle for resources, believes the International Energy Agency, which writes:

“The competition from non-Russian barrels of diesel is intensifying. EU countries must compete with traditional buyers of diesel from the USA, the Middle East and India.”

Better capacity will eventually improve the market balance, but in the meantime, diesel prices can become so high that demand falls sharply permanently as a result – this is what analysts often call “demand destruction”.

In other words, diesel prices are likely to be higher than they are today throughout the winter.