A perfect storm is taking place in the diesel market, with a lack of diesel reserves, a lack of rail product, and a possible rail strike leading to a surge in prices.
Diesel prices have gone up by a third.
The national average price for diesel is $5.30 per gallon and is expected to go up 15 to 20 cents in the next few weeks.
This year's diesel reserves are the lowest since 1951, with the greatest shortfall in the Northeast region.
The Soy Transportation Coalition of the low water conditions that have turned the Mississippi River from a multi-lane to a single lane is not only limiting the ability of farmers to export their crops but also to receive the fuel andfertilizer they need to operate.
Adding insult to injury is the uncertainty that railroads will be able to provide during this critical time.
The labor deal needed to avert a national strike was rejected by two rail unions.
According to Lipow, diesel inventories in the New York/New England markets are facing an acute crisis, down over 50% since last year.
Lipow said that any weather delay causes a terminal to run out of product and that East Coast refineries make as much diesel as they can.
In June and July, the East Coast refinery operated at full capacity.
They operated at 10% of capacity last week. There is no more supply coming from the East Coast.
Diesel supply issues in New England were made worse when a Canadian refinery shut down in 2020 due to the swine flu.
Costs for farmers are going up in the Midwest.
Diesel costs are seen as an incursion into profitability by a number of farmers. The areas most dependent on the river are facing the biggest challenge in getting supplies. A couple of farmers told me that they have a local diesel supplier.
The Jones Act, also known as the Merchant Marine Act of 1920, prohibits a foreign vessel from transporting goods between two other countries, which is why diesel cannot be imported from another country.
All cargo transported between U.S. ports must be carried on ships that are mostly owned and crewed by Americans.
The 56 Jones Act tanker are being used. The Department of Homeland Security can temporarily waive the act for foreign vessels to move the fuel. The Jones Act was nixed for a tanker filled with diesel from the Gulf to go to Puerto Rico, where it would be used for power generators.
The price to book a Jones Act tanker is double that of a foreign-flagged tanker because of the small amount of U.S. owned and operated tankers available. The cost for a Jones Act tanker to carry 300,000 barrels of diesel from Houston to Boston is 16 cents per gallon. A foreign flag tanker carrying the same amount of fuel and heading to the same location is estimated to cost 8 cents per gallon if the Jones Act is nixed. A $1 million savings per tanker is achieved by the 8 cent per gallon difference. One of the reasons why energy traders use foreign flag tanker is because of this.
If the Biden administration wants to replenish New England gasoline or diesel inventories at the expense of exports, they need to waive the Jones Act for refined products loading on the Gulf Coast for delivery to New York, New Jersey, and New England. They won't do it until it's too late.
The price of diesel in the U.S. is higher than in Europe so traders are moving their tanker to the US. Two tanker trucks have arrived.
The tanker was destined for the Netherlands after being loaded with 650,000 barrels of diesel in the Middle East. It went to the other side of the country. Proteus Jessica was loaded in the Singapore area and headed to New York.
The EU ban on Russian refined product purchases will intensify competition for diesel supplies in New England. Diesel exports are of particular interest with the date of February 5, 2023, when the EU sanctions on Russian refined oil products start.
2 million tons of diesel imports from Russia must be replaced by the EU. According to the International Energy Agency, the EU's demand for refined products will increase by 300,000 to 500,000 barrels per day during the winter.