Last Wednesday, John Catsimatidis, the CEO of United Refining Co. told Bloomberg, “I wouldn’t be surprised to see diesel being rationed on the East Coast this summer. Right now inventories are low and we may see a shortage in coming months.
The U.S. stockpile of diesel fuel hit a nearly two-decade low on Wednesday. Diesel is vital for the transportation sector and economy at large, while the price of fuel hit record highs Wednesday.
Also reported Wednesday by the Energy Information Administrations (EIA), the nationwide stockpile of distillate fuel oil, a category that includes diesel fuel and oil, declined to about 104 million barrels, the lowest since May 2005. East Coast inventories declined to 21.3 million barrels of diesel fuel or about two weeks worth of supply, the lowest level since data was first recorded in 1990.
Meanwhile, the average cost of diesel fuel in the U.S. surpassed $5.56 a gallon on Thursday, the highest level ever recorded, AAA data showed.
Diesel has been characterized as the “lifeblood of the global economy,” and is vital for the construction, mining and agriculture sectors. The transportation industry alone consumed 122 million gallons of diesel per day in 2020.
Jacques Rousseau, a managing director of Clearview Energy Partners, in an interview with The Daily Caller News Foundation (DCNF) said, “What we’ve seen this year has been the abilities to turn oil into diesel, gasoline and jet fuel have diminished.”
Rousseau added, “Diesel fuel inventory levels and production have plummeted due to a decrease in refinery capacity nationwide. Several refineries, which process crude oil and turn it into diesel have closed in recent years, largely due to the COVID-19 pandemic-induced recession in 2020.”
Seven refineries, which processed a total of about 806,000 barrels of oil per day, have shut down over the last 3 years, leaving the U.S. with 124 operating refineries, down more than 10% since 2016, according to the EIA. Total U.S. operating refinery capacity fell 4.5% between 2021-21 to 17.7 million barrels per day, its lowest level since 2013.
Additional pressure on the American energy industry comes with the bans on Russian fuels in the U.S. and Europe amid the Ukraine crisis. Although the U.S. is a net exporter of distillate fuel oil, it has sought to fill the gaps in the global supply chain. The U.S. actually imported 77,000 barrels of distillate fuel oil from Russia in February.
Rousseau concluded telling DCNF, “A lot of countries won’t accept Russian fuels anymore. So, that has caused a need for more diesel around the world and the U.S. is a major exporter of refined products.
So, U.S. diesel exports are up. So, you have less capabilities, you got more exports and so what that’s doing is it’s drawing down the inventory levels in the United States.” Increased fuel prices and the decline of diesel inventory levels have already led to higher consumer costs.”
UPS and Union Pacific, the two largest American transportation and freight companies, have upped their individual fuel surcharges to account for the market instability. Union Pacific, which transports freight via rail, hiked its surcharge to an unbelievable 39% this month.
Two of the U.S.’s largest truck stop chains, Love’s and Pilot, said Thursday they are closely watching low diesel fuel supplies in the Northeast and growing concerns of industry-wide shortages, but said they have no plans to restrict purchases.
Patrick De Haan, an analyst at the research firm GasBuddy, told CNBC. “The U.S. food sector has also been impacted by the fuel prices. Higher prices are certainly going to translate into more expensive goods.”
Tyson Foods, one of the largest U.S. food producers, noted, “Inflationary pressures across the supply chain have led to higher costs in its earnings report.” Food prices increased 9.4% between May 2021 and April 2022, the largest jump since 1981, according to the Department of Labor.