By: April Carson
According to the Energy Information Administration, the United States is running out of diesel fuel just as demand is increasing heading into winter. There are only 25 days of supply remaining.
Brian Deese, National Economic Council Director said to Bloomberg TV that the country's diesel inventories are "unacceptably low" and they are considering all options to bolster supply and reduce prices. Nevertheless, as the stockpiles rapidly deplete, the Biden administration is left with unsound choices for long-term aid.
While gas and jet fuel demand slowly increased post pandemic, diesel was requested much sooner. This is likely because in addition to powering transportation vehicles, diesel is also necessary for construction equipment, farming machinery and the military.
The U.S. transportation sector consumed 1.11 billion barrels of distillate fuel in 2021, averaging at about 128 million gallons a day.
Because there is a high demand for this dirty fuel, traders are willing to pay more money for prompt deliveries than longer-term ones. These traders also expect prices to drop in the future, which is known as "backwardation." Thiscode means it's more profitable for suppliers to sell now rather than later.
But the problem is, there's only so much diesel to go around.
Contango, where demand is lower and suppliers build up inventory with the expectation of higher future prices, is typical in the summer market. However, this year has seen strong domestic and international demand as well as shrinking domestic refining capacity and sanctions on Russian petroleum imports which together have kept diesel's market tight throughout the year.
New England's winter fuel levels are running critically low-- down to a third of what is typically stockpiled for this time of year. This region relies more heavily on heating than other parts of the country, so this dearth in supplies is cause for alarm. The problem is exacerbated by the fact that this winter has been colder than normal.
As of Oct. 24, the average price for diesel nationally is $5.34 per gallon—a significant increase from last year's prices by $1.63 . If inventories continue to dwindle without government intervention, it could lead to even higher transportation costs that would in turn drive up inflation rates.
In addition, the Fed has some mechanisms to support diesel fuel supply, like the Northeast Home Heating Oil Reserve. This facility stores one million barrels of diesel in case there are any interruptions in supplies.
“We have taken care to be prepared to use them as and when necessary,” Deese said.
According to The Washington Post, the demand for diesel is so high that if a million barrels were delivered from Northeast reserves, they would be gone in less than six hours.
Recently, the Biden administration announced that it would use the country's emergency oil reserves to help counteract rising gas prices. However, some people have expressed concerns about how effective this will be in the long run.
It is clear that the US needs to find a way to increase its supplies of diesel fuel, or else it will be facing some serious problems in the near future. With the country's reserves at such low levels, it is only a matter of time before supply disruptions start to occur.
Although American officials haven't ruled out fuel export restrictions, the joint letter from the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers in early October voiced their concerns.
In their letter, the group said that instituting a ban or limit on exporting refined products would have negative consequences including reducing available inventory, hurting domestic refining capacity, increasing consumer fuel prices and causing conflict with allies.
If we set minimum inventory levels, this could not only affect the number of exports being sent out to other countries, but also relief for our domestic supply. However, if this happens it could lead to higher prices globally.
It is a difficult situation, but one that needs to be addressed in order to protect our country's interests.
The U.S. only has 25 days worth of supplies for diesel fuel -- the lowest it has been since 2008, according to the latest data from the Energy Information Administration (EIA).
Diesel is a critical fuel for the transportation sector, and the low level of supplies could lead to disruptions in the event of a major supply shock.
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About the Blogger:
April Carson is the daughter of Billy Carson. She received her bachelor's degree in Social Sciences from Jacksonville University, where she was also on the Women's Basketball team. She now has a successful clothing company that specializes in organic baby clothes and other items. Take a look at their most popular fall fashions on bossbabymav.com
To read more of April's blogs, check out her website! She publishes new blogs on a daily basis, including the most helpful mommy advice and baby care tips! Follow on IG @bossbabymav
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