Explained: The US Diesel Shortage And Its Reasons

According to reports, the United States as of now has only 25 days worth of diesel supply in its reserves. Sharp price spikes within the next 6 months is likely.

The only way out is a slowdown in fuel consumption or some emergency measures by the US President Joe Biden administration. When a spokesperson of the Biden administration was asked about the looming diesel shortage by the media, they didn’t have a convincing or reassuring response.

Stocks are at just 106 million barrels, according to data from the Energy Information Administration (EIA). This is the lowest amount of barrels for this time of the year since EIA started maintaining a database.

This is a massive 26 million short compared to the average for this time of the year, as per the EIA. 

According to a report from Bloomberg, "Fuel supplier Mansfield Energy wrote in a note to its clients that 'conditions are rapidly devolving and at times, carriers are having to visit multiple terminals to find supply, which delays deliveries and strains local trucking capacity'.”

At the beginning of this week, Goldman Sachs warned that fuel shortage is not a challenge only for the US but a problem that is spreading to Europe as well.

This is bad news for Europe as it is already struggling with an energy crisis. Diesel shortage will lead to a surge of diesel prices in Europe, which will be a double whammy for the continent. 

The fact that the US is facing a diesel shortage only complicates the matter for Europe. Tanker data reveals that an increasing quantity of diesel that was originally bound for Europe is now being transferred to the American east coast. 

90,000 tons of diesel and jet fuel that was heading to Europe has recently been just rerouted to the US east coast. 

National Economic Council Director Brian Deese has said that all options are on table to replenish US supplies. 

One of the primary reasons for the diesel shortage is the Russia-Ukraine war.

Import of diesel from Russia has been banned. This has resulted in a supply crunch as there is less diesel in the Western market now. The situation is worsened by the fact that winter is nearing.

During winter, many people in the US and Western Europe use diesel to heat their homes. So there is a surge in demand and a decline in supply, both at the same time. 

As per AAA data, diesel prices are already 50 per cent higher now than they were at this time during the previous year. 

Demand in Europe will also be higher than it would have been during regular winters as Europe is now attempting to cut itself off from Russian gas.

This means Europe is more dependent on diesel for heating homes than it was last year or any year before that. So, we have two factors accelerating the surge of demand in Europe.