Diesel supply has been in the news recently, despite the fact that the US is currently leading the world in the production of petroleum products, the price of diesel is expected to keep rising. This is because the price of petroleum products is determined by many factors. This includes the Jones Act, the refining capacity, the stockpiles, the bio-diesel production, the COVID-19 pandemic, and the price of foreign-flagged tankers.

Stockpiles

Despite the strong demand for diesel, the United States has a mere 25 days of supply left. The supply is expected to drop to its lowest level this winter. The Biden administration is looking at options to increase the emergency supply.

The Northeast region has been hit by diesel shortages. New England is the region where diesel fuel is used most for heating homes. Stockpiles have dropped to their lowest levels in more than a decade.

According to the U.S. Energy Information Administration (EIA), the nation has only 25 days of diesel fuel left. That is the lowest stockpile since 2008. Stockpiles are about one-third of normal levels in the Northeast.

Stockpiles of ultra-low sulfur diesel were around 95 million gallons last week. It was less than half that level a year ago. Stockpiles have been below 100 million gallons for three months.

A key fuel pipeline connecting Gulf Coast refineries to East Coast consumers was underutilized for months. It was recently redirected to New York. Two tanker ships carrying around 1 million barrels of diesel are expected to come to New York in November.

Diesel fuel prices are on the rise. According to the Energy Information Administration (EIA), the national average price of diesel fuel increased to $5.34 a gallon during the week ending October 24. Diesel prices have increased by more than 50% compared to last year.

Diesel fuel prices will continue to increase, affecting food production, inflation, and the delivery of merchandise. The Biden administration recently announced it is exploring options to increase the emergency fuel supply.

The Biden administration is also considering possible export restrictions for diesel fuel. These restrictions would cut back on domestic refining capacity, causing consumer fuel prices to rise.

Refining capacity

Despite record profits, no new refineries have been built in the U.S. since the 1970s. Instead, refiners are attempting to boost capacity at existing sites. However, the bottleneck at the nation’s refineries has only become worse.

A major US diesel supplier has warned of an impending shortage. This comes as distillate fuel inventories have plummeted by 20% compared to last year at this time. The shortage is exacerbated by low imports and seasonal maintenance at refineries. The US Energy Information Administration reports that distillate fuel inventories are at the lowest levels since 1990.

Demand for liquid fuels has almost recovered to pre-pandemic levels. But with lower capacity and low imports, the supply-demand balance has tightened. This could lead to accelerating price increases.

The loss of oil from Russia has exacerbated the shortfall. Global capacity has shrunk by more than 2.13 million barrels per day. However, this is not the primary reason for the loss.

Refinery capacity losses have occurred on the West Coast, Mid-Atlantic and East Coast. Several refineries have shut down due to hurricane damage or due to the impacts of the COVID-19 pandemic.

The United States has lost more than 1 million barrels of refining capacity since the pandemic. A total of 13 refineries have closed. Most of the closures were attributed to a combination of weaker demand forecasts, unprofitable plants and conversions to produce more renewable fuels.  This can also be attributed to President Joe Biden not completing the Keystone Pipeline.

Refinery capacity expansions are also underway. A 700,000 barrel-per-day refinery is scheduled to come online in Kuwait this summer. ExxonMobil has also added capacity at its Baton Rouge refinery. These new facilities are designed to help meet demand in the Middle East and Asia.

COVID-19 pandemic

During the outbreak of COVID-19 in September and November of 2020, there was a reduction in the volume of petroleum produced and consumed in the U.S. These trends have continued through the beginning of 2021. The pandemic will have a long-term impact on oil and diesel supply and demand.

In terms of diesel fuel supply, the EIA reports that as of October 28, the U.S. has 25.9 days’ worth of diesel fuel in storage. This number isn’t a countdown, but it’s a measure of how much time is needed to refill stores if the industry stopped importing diesel fuel.

The number is important because it shows how close the U.S. is to reaching a full stockpile of diesel fuel. Despite the fact that the supply is low, the EIA projects it will increase in 2022. This indicates that the supply of diesel is still relatively tight by historical standards.

There are numerous factors that contribute to the supply and demand challenges that are currently facing the U.S. Oil refineries have closed, and war in Ukraine and sanctions against Russian oil have exacerbated the supply strain.

The pandemic has also affected gasoline demand. Demand for gasoline is higher now than it was during the outbreak, because the economy has begun to recover. This has also led to the rise of gasoline prices.

There are also many other factors that have contributed to the reduction in diesel consumption. The decrease in fuel consumption is the result of a variety of factors, and a more comprehensive study is necessary to determine the specific factors that affect diesel consumption in the U.S.

Bio-diesel

Increasing production of bio-diesel in the United States is expected to increase the demand for raw materials. Government incentives are driving a rapid growth in biofuel production. This is expected to lead to a “massive acceleration” of the biodiesel industry.

Biodiesel is made from oils derived from plants. The raw material is used to produce a variety of fuels, including gasoline and diesel. It is mixed with regular diesel fuel at a ratio of approximately 30%. Biodiesel blends are used to fuel certain fleets, such as truck and airplane engines. Some truck fleets are now running on 100% biodiesel.

Biodiesel production in the United States is expected to reach 330,000 barrels per day in 2024. This would account for about ten percent of the nation’s diesel fuel demand.

Biodiesel is an environmentally friendly form of diesel fuel that is made from oils extracted from plants. It is shipped by truck, barge, train, or pipeline. It is distributed to companies, individuals, and fleets.

In the United States, biodiesel is produced in 75 facilities with a total production capacity of 2.4 billion gallons per year. Most of these facilities are located in midwestern states. The Czech Republic, Germany, and Sweden opened biodiesel plants in the 1990s.

The United States DOE’s Clean Cities program provides information on the use of biodiesel in transportation applications. It also maintains the Alternative Fuels Center.

The Clean Fuels Alliance America represents the renewable diesel industry. It is made up of feedstock processors, fuel marketers, and technology providers. It advocates growth through governmental affairs, education, and advocacy.

The biodiesel industry supports about 65,000 jobs in the United States. It supports $780 million in economic opportunity.

Price differences between Jones Act and foreign-flagged tankers

Among the many effects of the Jones Act, one of the most significant is the price difference between Jones Act and foreign-flagged diesel tankers in America. A Jones Act compliant tanker costs about twice as much to charter as a foreign-flagged tanker. The difference in cost is a result of the Jones Act’s cabotage restrictions.

The Jones Act requires US-flagged vessels to carry goods between US ports. This act is designed to protect U.S. shipyards, but it also has widespread implications for the US economy.

In recent years, the price of transportation for refined products like gasoline and diesel has skyrocketed. This is due to recent trends that have altered the transportation of crude oil.

During the early 2000s, US crude oil production reached a 25-year high. This increased demand for fuel has created a surge in tanker demands, particularly in the Gulf Coast. In fact, the cost of moving crude from the Gulf Coast to the Northeast costs between $5 and $6 per barrel.

Because of this, the demand for Jones Act compliant vessels has risen sharply. The capacity of these vessels has increased by one-third in the past three years. This overbuild has also led to a decline in term charter rates for medium-range Jones Act tankers.

In 2010, the operating costs of U.S. flagged vessels were nearly 2.7 times higher than those of foreign competitors, according to a report by the U.S. Maritime Administration. This is in addition to the cost of crewing.

While these cost differences have caused some charterers to seek a Jones Act waiver from the government, the process is still very much a case-by-case process. The Department of Homeland Security has commented on the waiver process, but has yet to make a determination on a case-by-case basis.

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