Inflation weary Americans are facing another shortage that will take a bigger bite out of their paychecks. Supplies of diesel fuel are plummeting to historic lows, creating record spikes in the cost for distillate products. A perfect storm is brewing that threatens to ignite an inflationary inferno.
Diesel prices have jumped 33% for November deliveries. The national average price for a gallon of diesel is $5.37. Oil experts expect the price to climb another 15 to 20 cents in the next few weeks. Diesel prices were $2.364 a year ago. The record is $5.713 per gallon, which may soon be eclipsed.
Households using heating oil will spend about $2,354 this winter, a 27% increase from 2021. This comes at the time when families are having a difficult time paying their electric and gas bills. About one in six U.S. households are in arrears, according to the Energy Information Administration (EIA).
The diesel crunch will ripple throughout the economy. Air travel will be more expensive. Propane, used to heat some households, will cost more. Transporting goods by diesel trains will soar. Farmers cost of producing food will rise. Prices for shipping via diesel trucks will surge.
The result will be even higher costs for food and consumer goods. As a result, American consumers will once again bear the brunt of the failed policies of the Biden Administration that are crimping the supply of fossil fuels and discouraging oil production.
President Biden announced $13.5 billion in funding to help low-income households deal with high heating costs. But the president offered nothing to relieve the shortage. The administration's answer is to blame the refineries and oil companies for making windfall profits. That's not a solution.
The petroleum industry is warning the nation has a 25-day supply. Pro-Biden media fact-checkers claim the industry is misleading Americans. Yet Biden's Department of Energy released data confirming the country has 25 days of diesel supply remaining. Misinformation is a media staple.
The fact is distillate inventories haven't been this low in November since the EIA began reporting the data in 1982. This is a far worse than previous shortages, according to the EIA. These low inventories are the reason prices are marching upward.
The crunch is far worse in the New York/New England markets, which depend on heating oil during the winter. Diesel inventories have plunged 50% since last year, the lowest level since 1990. East Coast refineries are currently operating at 102% of capacity, however, supplies are running dangerously low.
The current diesel shortage can be traced to a number factors. The industry has shuttered 13 oil refineries which accounted for more than 1.4 million barrels of oil per day. That is more than 7% of the country's entire capacity for refining gasoline, diesel and jet fuel.
Last month, Lyondell Basell industries announced it will close its 104-year old refinery by the end of next year. That will result in the reduction of 263,000 barrels of production a day. Since 2018, only three new refineries have opened as environmental regulations blunt the incentive to build more.
Older refineries are closing because retrofitting the facilities to meet new regulations is not economically feasible. Regulatory and environmental hurdles add substantial costs to plans for new refineries. Additionally, environmental lawsuits often derail projects before construction.
Paul Doucette, a former energy transition and general manager at Baker Hughes, explained the disincentives for Forbes. "The real questions for refineries right now is whether to invest billions of dollars on retrofitting old facilities. You ask yourself, can I make money over the next 40-years?
"The market is telling you that EV's are becoming more popular, that pressures to reduce emissions are more severe, that carbon prices or taxes may be coming in the near future, and that the environmental community may not want you there."
Complicating the supply issue, the U.S. has been exporting more than one million gallons of diesel to Latin American nations and Europe to help those countries stick to their pledge to buy no fuel from Russia. Latin America is the largest purchaser of American refined gasoline products.
The European Union needs to replace two million tons of diesel imports from Russia. In addition, the International Energy Agency estimates the EU's demand for refined produces will increase by 300,000-500,000 barrels per day during winter to meeting heating demands.
This administration can't truthfully claim they were caught flat-footed by this crisis. Demand for distillate fuels (diesel, jet fuel, heating oil) historically leaps at this time of the year in the U.S. It does every single year. There is nothing nefarious going on.
Unfortunately, there is no likely scenario where consumers win. For his part, President Biden has shown no empathy for average Americans footing the bill for his misguided policies. His plan is to destroy the fossil fuel industry no matter the costs to Americans or the damage to the economy.
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