There's plenty of oil. Diesel, on the other hand...
In this post I'm going to lay out the case for diesel and jet fuel over gasoline and how to profit from it
In 2019 I read a piece by an economist named Philip Verleger who has been doing petroleum and fuels work since the early 1970s when he earned a PhD in economics from MIT and became an advisor to the Ford administration - which was dealing with an energy crisis. He would later play a critical role in the development of the oil futures market, lecture at Yale, and serve on the board of several oil majors.
The article was about coming regulations in the marine fuel market which aimed to reduce the sulfur content of marine fuel. He called it one of the most significant events in the history of petroleum markets and reckoned that it would reshuffle global refinery economics, putting more stress on diesel and jet inventories which were hard to decarbonize, as distillates would need to be blended into the bunker mix in order to lower the sulfur content.
It was around this time, and largely due to Mr. Verleger’s work, that I got very interested in tankers and refineries - a passion that would literally change the course of my life. Reading that article and digging into the details, I learned that the yield of a barrel of crude oil (the products you can make from it) is very dependent on the chemical composition of a barrel of crude oil.
Doing something like taking sulfur out of crude oil is expensive. During the run up to IMO 2020, refiners greatly preferred low sulfur crude grades, so much that an Australian crude called Pyrenees sold for nearly $100/barrel, which at the time was a more than $30 premium to Brent. I bring this up to highlight an important point - different types of oils are very chemically different from one another and yield very different products.
Why does this matter? In this article we’re going to explore gasoline and diesel demand, US shale and its decreasingly valuable products, which crude grades yield the most diesel, and US renewable diesel production.