November 7, 2022

Our Dangerous Diesel Fuel Shortage

Joe Biden’s war on domestic energy has claimed another victim.

As if crippling inflation and surging consumer prices weren’t enough, now we’re running low on the life’s blood of the supply chain: diesel fuel.

Diesel is the juice that keeps the economy humming. Trucks and trains run on diesel to ship manufacturing goods, consumer products, and the parts to make those goods. We need diesel to power large agricultural equipment and to ship agricultural goods around the country. And, ironic though it may seem, tanker trucks that ship gasoline from refineries to the pumps also run on diesel.

Diesel inventories are at their lowest since 1993. Government data indicates that there’s not enough of the fuel stockpiled to get the country through November. Think about that. The current supply is 19% below the five-year average and the lowest level on record for this time of year.

This shortage has led to a significant jump in prices, with the price of diesel for home heating delivery up 38%. Retail prices for diesel by the gallon are up 9% from one month ago and nearly 50% from a year ago. And prices are expected to rise another 20 cents per gallon in the next few weeks.

This shouldn’t have been a surprise to anyone paying attention to the fuel oil markets. The alarms were sounded by the energy industry as far back as May, when diesel prices started rising along with gasoline. Mansfield Energy, one of the nation’s top fuel supply and logistics companies, released a supply alert in October stating that East Coast fuel markets were about to face a terrible squeeze in diesel supply, with the Northeast facing high prices and the Southeast enduring supply outages.

The current diesel shortage and economic pain that comes with it are due to several factors. These include the pandemic, which cratered fuel demand for much of 2020, and refineries, which were compensated while they wound down production. However, with everyone staying home and having everything shipped to them from Amazon, trucks continued to roll, keeping diesel demand at its regular levels despite the reduced refining capacity. When the pandemic eased and Americans returned to work, diesel capacity played a futile game of catch-up that’s now wrecking fuel markets. World market instability brought on by the Russia-Ukraine war and its accompanying shortages and sanctions is also putting pressure on price and supply.

The surest answer is to increase refining. This is a task that the Biden administration has repeatedly refused to do with domestic gasoline, so no sense holding one’s breath on that. Even if the president had a sudden surge of intelligence and allowed for increased production and refining capacity, it would come too late to be of any help this winter.

The counterpoint is that there are plenty of refineries currently operating to get us out of the crisis, though when that will happen is hard to say. Some analysts also argue that it’s unlikely the diesel inventory will completely bottom out and that we won’t see fleets of trucks stranded along the side of the highway.

This is good news, we suppose, but the diesel shortage will surely keep inflation roaring at its painful levels as the high fuel prices will be passed on to the consumer. And that’s not good news for anyone.

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