A major fuel company has issued a warning about diesel supply on the east coast.
Mansfield Energy says that the supply constraints are attributable to market conditions and tight inventories.
“Poor pipeline shipping economics and historically low diesel inventories are combining to cause shortages in various markets throughout the Southeast,” the company explained in a statement. “These have been occurring sporadically, with areas like Tennessee seeing particularly acute challenges.”
The warning came as the U.S. Energy Information Administration said that the country has only a 25-day supply of diesel left, the lowest level since 2008. Mansfield says that conditions are “rapidly devolving” and have moved to a heightened state of crisis preparedness to address market volatility. As part of the change, the company now requests 72-hour notice for delivery to ensure fuel and freight can be secured at market-acceptable prices.
“In many areas, actual fuel prices are currently 30-80 cents higher than the posted market average, because supply is tight. Usually the ‘low rack’ posters can sell many loads of fuel before running out of supply; now, they only have one or two loads,” the company stated. “That means fuel suppliers have to pull from higher cost options, at a time when low-high spreads are much wider than normal. At times, carriers are having to visit multiple terminals to find supply, which delays deliveries and strains local trucking capacity.”
Diesel availability is crucial to the U.S. supply chain, as most goods and services are not produced locally and need to be delivered to cities by trucks, whose engines run on diesel.
A major shortage would mean those deliveries can’t make it to consumers, potentially impacting how much gasoline is available, how much food is on the shelves, and other industries or commodities that are not self-sourced by local communities.
“Diesel markets operate on a ‘just-in-time’ basis – pipeline shipments arrive every few days, bringing enough supply to meet local demand in local markets such as Birmingham or Richmond,” Mansfield said in a separate statement. “But a disruption forces markets to turn to inventory. US diesel markets tend to be comfortable and liquid when inventories are around 35-40 days; 30 days of supply begins to get tight. At 25 days of supply, there’s critically low fuel available when a crisis hits.
The company explained that the east cost is currently in focus because it relies on only two pipelines and is supplied by Gulf Coast refiners that can “easily re-route supplies to other countries at the right price.”
Fifty million barrels of diesel is usually what the east coast would have in storage. But, this year the east coast has less than 25 million barrels on hand. So, when bulk traders “go to pull their inventories, they may not find much left in the tank,” Mansfield says.
If the diesel industry continues to be depleted without government action, the impact on the transportation sector may cause inflation to spike even further than the 40-year-highs the U.S. has seen for most of 2022.