Diesel prices have spiraled out of control in energy markets this year.
East Coast diesel inventories have dwindled to their lowest levels in more than 30 years. Nationally, stockpiles sit at a 17-year low.
Because diesel is a crucial component of the economy, fueling everything from farming machinery to construction equipment to cargo ships, further price increases or a disruption in supply could prove devastating for the post-pandemic recovery.
What’s the Cause?
One of the contributing factors has been the growing number of retired refineries.The widespread closures have decreased the region’s oil processing capacity from 1.64 million barrels per day in 2009 to about 818,000 barrels per day this year. Since the sector’s capacity has been limited, the cost to produce petroleum products has risen exponentially, with refineries charging roughly $150 to refine a barrel of crude oil.
Javier Blas, Bloomberg columnist and co-author of “The World for Sale,” has been taken aback by warnings of shortages throughout the petroleum market.
Kyle Bass, chief investment officer at Hayman Capital Management, was blunt in his assessment of the situation, blaming the current dire situation on environmental activists and organizations.
“When the East coast runs out of diesel this summer, maybe then we will have a few of the galaxy brains in DC think they might have mortal errors in their energy transition plans.”
It isn’t only U.S. refineries that have closed their doors. Many Canadian refineries in British Columbia, Ontario, and the Maritimes have been closed. A growing number of Russian refineries have either scaled back operations or retired completely amid overstocking, resulting in a significant increase in U.S. diesel exports to Europe.
Market analysts warn that it will be challenging for the United States to satisfy domestic and foreign demand simultaneously.
Rationing or Relief?
Under current conditions, the diesel crisis might intensify into shortages that could cause rationing, says billionaire John Catsimatidis, who owns a small oil refinery on the East Coast and many gasoline stations.The rising price of diesel is weighing on too many companies that are trying to seek efficiencies to withstand higher costs.
“A lot of these trucks you see now are not going to be here anymore. A lot of these trucks are a small company like myself that just can’t afford to pay these high prices,” Edwards said.
That could be terrible news when 70 percent of the nation’s consumer goods and freight are transported by truck.
From growers to distributors, the entire supply chain is being decimated by rising energy costs, which may translate to lasting effects that extend beyond fresh produce at the supermarket.
Could the White House Intervene?
President Joe Biden could soon tap the nation’s emergency diesel reserve as part of the administration’s efforts to address a critical supply crunch, reports suggest.U.S. officials are also reportedly drafting other policies in response to supply concerns.
However, the reserve only contains about 1 million barrels of diesel. Any release will likely have a minimal impact since the United States consumes 122 million gallons per day, which is equal to roughly 2.9 million barrels.
Since 2000, the country’s diesel stockpiles have been touched only once. In 2012, following Hurricane Sandy, then-President Barack Obama had sent 24 million gallons of fuel to New York and New Jersey as part of the federal government’s recovery efforts.