As gas prices ease, US now has to deal with diesel crisis

Winter Heating Maine
A fuel delivery truck advertises its price for a gallon of heating oil, Wednesday, Oct. 5, 2022 in Livermore Falls, Maine. Winter is still two months away, but people are already worried about staying warm amid high energy costs and disruptions around the world. (AP Photo/Robert F. Bukaty) Robert F. Bukaty/AP

As gas prices ease, US now has to deal with diesel crisis

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As the United States took steps to alleviate high gas prices this year, the cost of diesel, another key commodity, has been quietly climbing for months thanks to a supply crisis that threatens to extend to nearly every corner of the U.S. economy this winter.

The surge in diesel prices is due to a sharp imbalance between refining capacity and global demand.

NORTHEAST CAREENING INTO ‘WHAC-A-MOLE’ WINTER ENERGY CRISIS

In the U.S., distillate inventories have dropped to their lowest point since 1951, according to the Energy Information Administration, but demand is roughly four times that level.

The scarcity has sent diesel prices climbing 43% higher in the last year, compared to just 15% for gasoline.

National diesel costs are expected to average around $6 per gallon this winter — or worse if the weather gets colder, said Mark Wolfe, the executive director of the National Energy Assistance Directors Association.

“Going into winter, if and when it gets cold in the Northeast … a [cold spike] could cause prices to jump by $8, $10, even, [per] gallon,” Wolfe said.

The uptick in diesel prices is the result of multiple factors — among them low inventories of distillate fuel oil, both in the U.S. and globally, as well as increasing demand, lower production, and higher transportation costs for the commodity.

There’s also been a drop in production from the U.S. and China, the world’s top two diesel refiners, each producing at less capacity than they were compared to pre-pandemic levels.

The U.S. has shut down or repurposed a number of its refineries in the past two years, and those that are still operational produced a total of 17% less fuel this year compared to the five-year average, according to government data.

And while China does have available refining capacity to spare, it is prohibited from exporting additional fuels due to stringent domestic policies unlikely to abate anytime soon.

The U.S. also banned Russian gas imports, further cutting into domestic supply.

Prior to the war in Ukraine, the U.S. was importing roughly 700,000 barrels of petroleum from Russia each day and has yet to make up for that loss.

In the meantime, analysts say high distillate fuel prices will be felt in nearly every major U.S. industry. Among the most impacted will be farmers, truckers, and households in the Northeast, which rely heavily on home heating oil to heat their homes.

According to the EIA, residents who rely on home heating oil will spend an average of $2,354 to heat their homes this winter — a 27% increase from the previous winter and the highest price point in more than 25 years.

And since analysts don’t expect distillate markets to return to normal until next summer at the earliest, the U.S. is in uncharted territory, at least for the foreseeable future.

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“This is the first time, really, that one fuel has jumped so high before” and has so directly upended the lives of consumers, Wolfe said.

© 2022 Washington Examiner

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