For all the drama surrounding Biden’s latest Strategic Petroleum Reserve fiasco and his admin’s ridiculous idea to “stimulate” US energy producers to pump more oil because, you see, Biden promises to buy oil at some unknown point in the future (he may or may not, but right now he is certainly draining a million barrels of emergency US energy lifeblood just to buy a few midterm votes, assuring energy producers have zero incentive to produce more), the real crisis is not oil or gas, but diesel.
The problem is that as we repeatedly warned over the summer, even as others were transfixed by the moves in gas, see:
- Sorry, Diesel Prices Are Likely To Climb Again Soon (Aug 4)
- Can The Global Gasoline And Diesel Crisis Be Solved? (June 21)
- D-Day Approaches: Crack Spread Soars As Diesel Market Braces For Historic Shock (May 3)
- The Diesel Market Is Soaring, And Gasoline Prices Will Catch Up This Summer (May 1)
- Global Diesel Shortage To Push Oil Prices Much Higher (March 25)
- “Gas Stations Will Run Dry”: Catastrophic Scenario For Diesel Emerging (March 23)
- Global Diesel Shortage Raises Risk Of Even Greater Oil Price Spike (Mar 12)
- China Asks State-Owned Refiners To Halt Gasoline, Diesel Exports (Mar 10)
- U.S. Diesel Stocks Set To Fall Critically Low (Feb 18)
- Diesel Is The U.S. Economy’s Inflation Canary (Feb 8)
… the crisis gripping the US diesel market is getting out of hand, as demand is surging while supplies remain at the lowest seasonal level for this time of year ever, according to government data released Wednesday.
According to the EIA, the US now has just 25 days of diesel supply, the lowest since 2008; and while inventories are record low, the four-week rolling average of distillates supplied – a proxy for demand – rose to its highest seasonal level since 2007.
In short, record low supply (courtesy of stifling regulations that have led to a historic shortage of refining capacity) meet record high demand. What comes next is, well, ugly (while weekly demand dipped slightly in the latest week, it’s still at highest point in two years amid higher trucking, farming and heating use).
The shortage of the fuel used for heating and trucking and – generally speaking – to keep commerce and freight running, has become a key worry for the Biden administration heading into winter, perhaps even bigger than the price of gas heading into the midterms (well, not really). As Bloomberg’s Javier Blas writes, “such low levels are alarming because diesel is the workhorse of the global economy. It powers trucks and vans, excavators, freight trains and ships. A shortage would mean higher costs for everything from trucking to farming to construction.”
National Economic Council Director Brian Deese told Bloomberg TV Wednesday that that diesel inventories are “unacceptably low” and “all options are on the table” to build supplies and reduce retail prices.
But while the White House claims to be so very concerned about the coming diesel crisis, it is doing absolutely nothing besides draining the SPR which has zero impact on diesel production.
The historic diesel crunch comes just weeks ahead of the midterm elections and will almost certainly drive up prices for consumers who already view inflation and the economy as a top voting issue. Retail prices have been steadily climbing for more than two weeks. At $5.324 a gallon, they’re 50% higher than this time last year, according to AAA data.
Wholesale diesel prices in the spot market of New York harbor, a key pricing point, have surged this week to more than $200 per barrel. Excluding a brief interval from late April into mid-May, that would be a record high.
As a result, American refiners are enjoying the best-ever diesel margins, with the profit of turning a barrel of crude into one of diesel – i.e., the diesel crack spread – hitting a record high of $86.5 per barrel, up roughly 450% from the 2000-2020 average of $15.7 per barrel.
This isn’t all that surprising. as we have been warning all year, the American diesel market has been in crisis mode for most of 2022; if only others had caught on this crisis may have been averted. But now, it’s too late, and national stockpiles have drained as refiners entered maintenance season and as Russia’s war in Ukraine tightened global supplies and limited imports. Meanwhile, market backwardation – where prompt deliveries are priced at a premium over future deliveries – has made building inventory extremely costly, feeding into a vicious cycle of tight supplies and price spikes. In New England, where more people burn fuel for heating than anywhere else in the country, stockpiles are less than a third of typical levels for this time of year.
The reasons for the collapse in inventories and the price surge are four-fold.
- First, local diesel demand has recovered quicker than gasoline and jet-fuel from the impact of the pandemic, draining stocks.
- Second, foreign demand is also strong, with American diesel exports running at unusually high level.
- Third, and according to many, most important of all, the US also has lower refining capacity than before, reducing its capacity to make fuels.
- Fourth is Russia’s invasion of Ukraine. The US was importing a significant amount of Russian fuel oil before the war, which its Gulf of Mexico-based refiners turned into diesel. The trade ended after the White House sanctioned Russian petroleum exports.
Some relief is on the way, courtesy of those handful of international sources of commodities that the Biden admin hasn’t declared an implicit war on. At least two vessels carrying around 1 million barrels of diesel are due to arrive in New York after being diverted from their original destinations in Europe. Delta’s Trainer refinery in Pennsylvania is also returning from seasonal maintenance, which will increase regional diesel production.
But the impact of such band aids will be tiny. As Bloomberg’s Blas writes, “the diesel crisis leaves the Biden administration facing very difficult choices. If he leaves the market alone, prices are likely to rise further before they drop; if he intervenes, either setting up minimum inventory levels or restricting exports, price increases will likely be felt elsewhere into the world. Either route will have big implications for inflation at home and for energy security in Latin America and Europe.”
In a testament to just how clueless the Biden admin is, last spring wholesale diesel prices surged to all-time high as inventories plunged in April and May, pushing retail prices to a record high. At the time, this website (and many others) warned that we have to take urgent steps now to avoid a crisis… and nobody moved a finger; jaw bones on the other hand never stopped. Well, fast forward to now when a new crisis is in the making. America typically uses the low-demand seasons of spring and summer to rebuild its stocks of distillate fuels ahead of the winter. But it failed to do so this year – something even Europe avoided by stockpiling nat gas knowing it faces a freezing winter otherwise – and stocks are now nearly as low as they were in April, at the end of the last heating season.
If inventories decline between October and April by their 20-year average of about 25 million barrels, the US will emerge from winter with a little more than 80 million barrels in stock. That, according to Blas, is an unlikely scenario, however: The oil market would try to keep inventories from falling that much, with prices rising high enough to slow the economy, curtailing demand. Over the last 40 years, American diesel inventories have never dropped below 85 million barrels, even at the end of the heating season.
So now that the genie is out the bottle, here are the choices the Biden admin faces, all of them unpalatable:
- The White House can let the market continue doing its job, with surging prices likely denting consumption and boosting supply. With refineries enjoying sky-high margins, more diesel should be coming. But the cost of the laissez-faire approach is higher inflation and a much faster recession as US industries shut down. Because diesel increases trucking costs, it’s a particularly pernicious sort of inflation as it quickly embeds into everything that needs to be transported, lifting core inflation measures.
- If the White House opts to intervene, the less harmful measure would be to release a small reserve of diesel that the government keeps for emergencies (clearly they have no problem doing that). The Northeast Home Heating Oil Reserve only has one million barrels, so it would be, at best, a Band-Aid. But it’s better than nothing, and Biden should order its release. For those asking, releasing more crude from the Strategic Petroleum Reserve would do little to resolve the problem, since the bottleneck is refining.
- Other interventions would have significant consequences, potentially harming American allies. In Washington, officials are mulling restricting, or even banning, diesel exports. If the measure is approved, it would leave neighbors including Mexico, Brazil and Chile short of diesel. In July, the last month with available full data, US diesel exports to Latin America hit a record high of 1.2 million barrels, double the amount a decade ago.
- Another option is forcing oil companies to build up stocks quickly ahead of the winter by setting a minimum inventory level, similar to what the European Union did for natural gas stockpiles. US officials are particularly worried about the northern part of the US East Coast, where inventories are low both seasonally and in absolute terms. The region, known in the industry’s jargon as PADD1A, is where the greatest demand is: Of the roughly 5.3 million households that use heating oil in America, more than 80% are in the Northeast. The problem with a mandatory minimum stock level is that it would force American refiners to import more or reduce their exports — or both. The impact in Latin America would be noticeable. Prices in the US may decline, but they will soar elsewhere.
The bottom line, as the Bloomberg energy strategist notes, is that “the timing of today’s diesel crisis couldn’t be worse.” That’s because the EU, which relies still on Russian diesel exports, will ban imports from February onward (assuming it survives the winter). Europe will be short of diesel then, and Biden needs to consider that too. Ultimately, the imminent arrival of the bone-crushing recession will rebalance the market, reducing demand, particularly as the housing market cools and construction slows down, and consumer demand for goods declines, reducing trucking needs.
That’s a heavy price to pay to resolve the problem, but with an administration as hopelessly clueless as this one, which today blasted the following tweet to make a point yet proved just the opposite…
It’s simple: When the cost of oil comes down, we should see the price at the pump come down as well. That’s how it should work.
But right now, refiners and retailers are making record profits at the expense of the vast majority of Americans. It’s unacceptable. pic.twitter.com/h3xiyEYEdv
— President Biden (@POTUS) October 19, 2022
… we are sadly out of options.
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That’s the whole point. Create an artificial problem that only the fed can solve, which of course is always a loss of freedom and expanded power for them.
You give the fed too much credit — they created the problem with NO intention of solving it … we’re merely meant to submit and to suffer the ‘great reset’ into the dark ages …
The great reset suffering is the solution to them.
The good thing about the new Tesla battery run tanks are that they just blow up on their own, you do not even need a Javelin or whatever.
I was paying about $3.39 for diesel when Badfinger was installed. Recently for a 2 week run Sheetz had it at $4.59 because they use predatory pricing to kill competition. When the Saudis announced their production cut it went up 50 cents that day and has been going up 10-20 cents almost daily.
Yesterday the cheapest around was $5.69. The night before at the very same place it was $5.49. In less that two weeks it is up $1.10/gallon.
Bloomberg is sounding the alarm because the world runs on diesel. They concluded the biggest issue is that we are exporting the bulk of refined product to Europe. Their diesel came from Ivan before Biden’s War. Now, without ours Europe has almost none.
So, I’m paying again for a conflict on another continent that we shouldn’t even be involved with.
Victoria Nuland and her zionist thugs created the bad situation in Ukraine in 2014 when they utilized our CIA to overthrow a legitimately elected government there because it wanted to enter into deals with Russia for purchases of oil and natural gas.
After 8 years of Ukraine’s murder of more than 14,000 Russians in the East, Russians had finally had enough — so they invaded Ukraine to stop that slaughter of their people.
The United States created the entire problem … or, rather, the ZOG created the entire problem … just as they’ve short-sheeted Germany in its zeal to also deal with Russia for oil and natural gas — hence, the destruction of Nordstream 1 & 2 by the United States.
$6.49 after work tonight. Ties the high from earlier during Badfinger’s Reign of Terror.
This a great opptunity for all truckers to go to electric trucks . The great reset ain’t going to reset itself.
Lead by example … and let the rest of us know how it works out for you …
sarc
If this wasn’t sarcasm, you’re retarded……
If you have read any of flash’s past comments you would know this was sarcasm.
bs,flash always speaks his mind–
in all the years i’ve been on here i have never seen him do any trolling–
he sight fishes,he never trolls–
Nothing in this article makes actual sense.
Raise interest rate whilst simultaneously choking the supply chain. This is how the Great Reset magic happens.
Oh won’t anyone think of the poor oil companies! Making record profits in such a time of upheaval?
How to say you don’t understand economics, fed/state taxes levied on gas, transportation and fed regulations without saying it.
At profit of $85/ barrel, why would OIL increase capacity?
With 45 plus years in the trucking and farming industries most people do not realize how much the price of diesel affects everything they do and everything they consume.
Everyone knows that things like groceries just appear on shelves over night and trucking and tractors don’t really have much to do with price increases. Thats entirely on greedy farmers and grocery stores ripping off people for profits. They need to be brought under govt controls and price setting…. and in case some are so dumb as to not understand… /s
Compounding the problem….
This Is Going To Be A Winter Like No Other
It is starting to get cold outside. Are you ready for a winter that will be unlike any other? As I have been documenting on The Economic Collapse Blog for months, the nightmarish global energy crisis that has erupted is not going to end any time soon.
In fact, it has the potential to get a whole lot worse in 2023 and beyond. Energy prices have already risen to absolutely absurd levels, and now winter is coming. Unfortunately, many forecasters are warning that this winter is going to be a doozy. Colder than normal temperatures are expected across much of the northern hemisphere, and if that actually happens that would put a tremendous amount of strain on the system.
For example, just look at what New England is potentially facing. According to the Wall Street Journal, residents of the six states which make up the region could actually experience “rolling blackouts” if this turns out to be a really cold winter…
New England will likely be directly competing with the European Union for dwindling supplies of natural gas this winter.
If the power is completely shut off where you live for several hours on one of the coldest days of the year, what will you do?
You might want to start thinking about that.
https://www.shtfplan.com/headline-news/this-is-going-to-be-a-winter-like-no-other
New England relies on nat gas imports because New York wont allow pipelines through. Even better, NY sits on a good bit of Marcellus but they won’t drill.
You know…climate change. They all deserve the misery coming their way.
The criminally disgusting aspect of this should be the fact that Pennsylvania and part of New York have as much gas and oil as Saudi Arabia. The pee pants of New York oppose drilling and pipelines even while they demand somebody do something to get the frigging oil to heat their houses. The people who bleed green have and use the filthiest of everything. The stupid, it burns, and is burned in New England.
I have 12 gal left. Should get me through the rest of the year running the PTO wood chipper and moving around firewood. If it doesn’t, I will just have to hope they make more of it.
I am glad I filled a 50 gallon drum for the tractor and generator before it got expensive. Of course I cycle it so it doesn’t go bad. I really need to get my bio diesel operation going. The tractor and genny are mechanical pump driven diesels so they will work fine.
Use Star tron enzyme fuel stabilizer. its great on Gas and diesel. I use it up here and even gas last for years.
run a Real centrifuge like FilterMaxx sells for automotive waste oil and then add 20% gasoline to make “black Diesel”
Never add gas to oil thinking it won’t pre-ignite and cause damage.
Pre-heat and add injection line heaters to that old oil for fail safe operation.
Just start and stop on real diesel.
yes the “add” part is actually a 30 minute blend before centrifuging. detention time is about 4 minutes to get it to less than one micron filtered. Check out FilterMaxx website for more detailed operations. I works great in both my JD tractors even in the winter without pre heating. just a small squirt of ether to get it started.
If I had a small farm like you and HSF, I’d buy a couple of Welsh ponies. The Amish like that breed. Small enough to handle for anybody, even children (versus draft horses), friendly and calm personality, versatile in their use. Can pull wagon to get you around, haul stuff, pull plow etc. Plus, your kids will have fun riding the ponies.
When my Dad was a child in the 1940s, he remembers that HE had to pull the antique plow on their little homestead, and it was a great relief when a neighbor bought a horse which they could borrow so all he had to do was guide the horse.
Watch youtube channel “Jim farming with draft horses” or something like that.
“For those asking, releasing more crude from the Strategic Petroleum Reserve would do little to resolve the problem, since the bottleneck is refining.”
Where is this refining bottleneck?
https://www.eia.gov/dnav/pet/pet_pnp_unc_dcu_nus_a.htm
https://www.eia.gov/dnav/pet/pet_pnp_unc_dcu_nus_m.htm
https://summit.news/2022/10/20/video-biden-energy-advisor-admits-that-the-regime-wants-to-limit-oil-production-to-accelerate-the-transition/
Once again, an author that considers this administration ‘clueless’ … as if all that has been happening is somehow because of — stupidity … when, in fact, it’s all happening because that’s the way it’s being planned to happen.
Our national and state leadership is not interested in serving the interests of We The People Of The United States — we’re long gone from their list of concerns and priorities.
Rather, their concerns and priorities as being pushed upon US are all centered around destroying everything in their path — the entire cultural and economic edifice that the West built up over hundreds and hundreds of years is to be totally destroyed … and a ‘great reset’ is to be inflicted upon US that will push US back into the dark ages from whence we came.
As I’ve mentioned before — it appears that an overwhelming number/percentage of our Citizens fail to comprehend that our own government means to inflict harm — even death — upon all of US … otherwise how to explain the period from January 20, ’09 – January 19, ’17 and the current EraOfFauci and his minions who’ve brought our nation out of freedom and into tyranny?
Here in Ecuador the price of diesel is $1.75 a gallon…….gasoline is $2.40 a gallon and a 40 lb. tank of propane is $3.50. The last time I checked inflation was around 3%. We are living better here than in the US for much less. As a military veteran I cannot afford to live in the country I served.
Having run an oil jobber w/ 1600+ home heating & kerosene customers, IMO the Northerast is really screwed. A 2,000 sq ft house in MA will use 1,500-2,000 gals, depending on where the thermostat is set.
Esso, Gulf, et al will take what a jobber bought last year and only supply 70-75% of last year’s purchases.
Also, remember that JP-4 & 5 are more refined kerosene.
I am in Northeast and burn wood…all good here!
North west here and burn wood only too. I use my Deuce and a half to get my firewood each year for free in the forest down the road. (actually a 20$ permit if I pay)
It’s ok…we can all just call Uber to get what we need….LOL. liberal logic.
40% more expensive than 91 octane and rising in my country. That will boost inflation nicely.
Sanctions have consequences it would appear