Diesel fuel inventories on the East Coast have hit the lowest levels on record, sending prices soaring to record levels and worsening economic pressures from the fuel crisis.
Last week, inventories of diesel fuel on the East Coast reached the lowest seasonal levels in 30 years, since the federal government began recording inventories, according to a report from Bloomberg. News of the shortage triggered a crisis in the market, and diesel prices surged to an all-time high. Prices spiked to $5.16 per gallon, GasBuddy reported, breaking the previous record of $5.15 per gallon set on March 10. The gap between gasoline and diesel prices also reached a record high of $1 per gallon, breaking the previous record price difference of 98 cents set all the way back in November 2008. Diesel prices continued to increase over the weekend, Bloomberg reported, rising to about $5.30 per gallon Tuesday. That spike was the fifth consecutive daily price increase in retail diesel prices. Diesel is already up more than 75% since last year, and prices are worst on the Eastern seaboard, retailing for at least $6 a gallon.
“While gasoline prices get much of the attention, diesel, which broadly is the fuel that moves the economy, has quietly surpassed its recent record high as distillate inventories, which include diesel and jet fuel, have plummeted to their lowest level in years,” GasBuddy chief petroleum analyst Patrick De Haan said in a press release last week. “Should distillate inventories fall another five million barrels, which is less than five percent, they will be at their lowest level in nearly 20 years, compounding the problem. There’s no quick solution as the economy has seen a robust turn around, made worse by Russia’s war on Ukraine as the West fences off Russia’s oil.”
GasBuddy blamed the falling inventories on “continued escalations” in the Russian invasion of Ukraine, and the response from the U.S. and its Western allies, in conjunction with increased consumer demand for products that are shipped by trucks, trains, and ships, all of which consume diesel fuel. The Biden administration previously imposed a series of sanctions on the Russian economy, including an embargo on Russian oil imports on March 8, as The Daily Wire reported. GasBuddy added that prices are likely to be the worst in the Northeast; COVID-19-related shutdowns cut refining capacity, and a 2019 explosion at the Philadelphia Energy Solutions refinery, the largest on the East Coast, forced the refinery to be shut down and demolished. Combined, these two factors have cut Northeast diesel production by nearly 500,000 barrels in refining capacity.
In total, East Coast refining capacity is less than half of what it was 15 years ago, Bloomberg reported. In the past 15 years, the number of Northeast refineries has been halved, from 14 to 7, and several refineries are operating well below capacity. One such refinery in Paulsboro, New Jersey, has several diesel-producing units that are not operational because it can longer import semi-refined oil feedstock from Russia due to the embargo, and Canadian suppliers have also closed in recent years, making the shortage worse. In all, the Northeast has reduced its total refining capacity from 1.64 million barrels per day in 2009 to just 818,000. Demand in the area is much higher, and on top of that, the U.S. is exporting “unusually high levels” of gasoline, diesel, and jet fuel.
Both Bloomberg and GasBuddy reported that refiners will likely shift toward diesel and jet fuel production because of favorable economics, but Bloomberg notes that doing so would impact the gasoline market just as the driving season begins. However, Bloomberg also notes that since 2012, the U.S. government maintains at least 1,000,000 total barrels of diesel fuel in New York harbor, Groton, Connecticut, and Boston, as a strategic reserve in case of crises like the current one, which could provide some relief. “Tapping those barrels to curb escalating diesel prices is becoming a question of when, rather than if,” Bloomberg concluded.