Low diesel supply threatens to worsen inflation crisis
Diesel prices for November delivery already surged 38%
Surging diesel prices 'really hurting' small trucking outfits: Bart Plaskoff
Summit Trucking president Bart Plaskoff says he is paying an extra $70,000 a week for diesel fuel as the shortage worsens on 'Varney & Co.'
The U.S. is grappling with the one of the worst diesel shortages in decades, with reserves of the fuel used for heating and trucking at the lowest seasonal level ever.
Government data released last week showed the country has just 25 days of diesel supply remaining, with stockpiles at the lowest level for records going back to 1993. In the Northeast, where more people depend on diesel to heat their homes in the winter, supplies are one-third of their typical levels during this time of year, the Department of Energy said.
The result has been skyrocketing prices that are likely to trickle down to consumers who are already confronting the worst inflation spike in a generation.
Diesel prices for November delivery have surged 38%, which will likely translate into more expensive home heating oil prices, particularly in the Northeast, according to Andy Lipow, president of Lipow Oil Associates, LLC.
US DIESEL SUPPLIER WARNS BUSINESSES TO PREPARE FOR SHORTAGES, HIGHER PRICES FOR CONSUMERS
The Phillips 66 oil refinery in Linden, New Jersey, on May 11, 2022. (Tayfun Coskun/Anadolu Agency via Getty Images / Getty Images)
Prices are expected to climb even higher in coming months with weekly demand at the highest point in two years amid more trucking, farming and heating reliance.
"The national average price for diesel today is $5.30 per gallon and is expected to go up 15 to 20 cents in the next few weeks," Lipow said.
Retail prices are also rising: The average gallon of diesel fuel costs about $5.31, according to AAA data, up 9% from just one month ago and about 50% from one year ago.
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The shortage stems from a perfect storm of events: When the COVID-19 pandemic shut down a broad swath of the U.S. economy, it also brought to a halt most refineries in addition to delaying the startup of new refining capacity, Lipow said. A weeks-long strike at a refinery site in France last month exacerbated the problem, and experts expect the European Union ban on the purchase of Russian crude oil and diesel that begins later this year to further impact supply.
President Joe Biden delivers remarks about the economy after touring Volvo Group Powertrain on Oct. 7, 2022, in Hagerstown, Maryland. (Chip Somodevilla/Getty Images / Getty Images)
On top of that, a phenomenon known as market backwardation – where prices in the near-term are higher than in the future – has made building inventory a "fool's errand," Lipow said.
"All of this is occurring as inventories around the world are drawing down," he said. "The result is rapidly rising diesel prices."
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The Biden administration has raised concerns over the shortage of diesel fuel with the midterm elections looming and voters already concerned about the state of the economy and painfully high inflation.
National Economic Council Director Brian Deese told Bloomberg last week that inventories are "unacceptably low" and "all options are on the table" to build supplies and reduce retail prices.