Diesel is a vital fuel for the US economy, powering not only farm and construction equipment but the trucks, trains and boats that move goods across the country. Skyrocketing diesel prices are likely to get passed along to families, contributing to America’s worst inflation crisis in four decades.
Inventories of diesel in the Northeast have plunged to record lows in recent weeks because of a confluence of factors that include the war in Ukraine and surging demand.
“The system is definitely under strain,” the senior White House official said.
The impact from such a release would be limited by the relatively small size of the reserve, which only contains 1 million barrels of diesel — equal to about a day’s worth of supply in the region.
“It’s small potatoes. It might buy a couple of weeks or even months, but it doesn’t solve the underlying issues,” Andy Lipow, president of Lipow Oil Associates, told CNN.
Last used after Superstorm Sandy
Alarmed by plunging inventories and soaring prices, Biden officials began extensive internal briefings and consulted with fuel retailers to better understand the situation, the official said.
The reserve was originally launched in 2000 as a way to meet a supply crunch caused by a severe winter storm. In 2011, it was converted from home heating oil to ultra-low sulfur distillate, a cleaner-burning diesel used to power engines in trucks, tractors and other vehicles.
‘It’s a band-aid’
Biden has asked officials to do the underlying groundwork necessary to be ready to release fuel from the reserve, the senior White House official told CNN.
“We think this looks like the exact circumstance where consideration of the release should be done and that’s what the president has directed,” the official said.
However, the reserve is relatively small and may only buy time, a limited amount at that.
By comparison, America’s stockpile of emergency oil, the Strategic Petroleum Reserve, currently contains 420 million barrels of crude oil. And that’s despite a series of massive releases from the SPR conducted during the Biden administration that has reduced the rainy-day fund.
“It’s a band-aid — one that isn’t going to last very long and when it comes off the injury is not healing,” Lipow said of the diesel reserve.
Loss of Russian barrels
The diesel supply crunch has been driven by a myriad of factors.
First, multiple refineries in the United States and Canada have been retired in recent years, limiting the system’s capacity to churn out gasoline, diesel and jet fuel to meet demand.
Secondly, energy demand has rebounded from the Covid-19 crash as people fly and drive more. Soaring jet fuel prices have incentivized refineries to make more of that fuel instead of diesel.
And then the war in Ukraine and ensuing sanctions further scrambled the picture.
Some Russian refineries have partially or fully shut down as Western nations attempt to punish Moscow for the invasion of Ukraine.
Analysts say the loss of Russian petroleum products has driven up US exports of diesel to Europe and elsewhere — just as demand for diesel has increased inside the United States.
The good news is there are signs the diesel supply crunch is easing, suggesting that perhaps a release from the Northeast reserve won’t be needed.
Moreover, Tom Kloza, global head of energy analysis at the Oil Price Information Service, pointed to how the Colonial Pipeline, a key pipeline carrying fuel to the Northeast, is fully subscribed after weeks of underuse.
“My hunch is we’re probably through the worst of this,” said Kloza.