Diesel market in best storm as costs rise and products decrease

A best storm is occurring in the diesel market, with diminishing diesel reserves, a dry spell on the Mississippi River pressing more item to rail and truck, and a possible rail strike resulting in a rise in costs that is anticipated to continue.

Diesel costs have actually increased by 33% for November shipment.

“The national average price for diesel today is $5.30 per gallon and is expected to go up 15 to 20 cents in the next few weeks,” stated Andy Lipow, president of Lipow Oil Associates, LLC.

Reserves for diesel this time of year have actually not been this low considering that 1951, with the best shortage in the Northeast area consisting of New York and New England.

“This is not only constricting the ability of farmers to export the soybeans and grain they grow but also to receive the fuel and fertilizer they need to operate,” stated Mike Steenhoek executive director of the Soy Transportation Coalition of the low water conditions that have actually turned the Mississippi River from a multi-lane interstate to a two-lane highway.

“Now adding insult to injury is the increased uncertainty that railroads will be able to provide an effective lifeline during this critical time. It’s a vivid reminder that it is not enough to produce a crop or have demand for that crop. Having a reliable supply chain that connects supply with demand is also essential for farmers to be successful,” Steenhoek stated.

Two rail unions just recently voted down a labor offer required to prevent a nationwide strike in the coming months.

Diesel stocks in the New York/New England markets are dealing with an intense crisis, down over 50% considering that in 2015 and at the most affordable level considering that 1990, according to Lipow.

Lipow stated East Coast refineries are making as much diesel as they can and based on tankers and barges for supply, any weather condition hold-up triggers a terminal to lack item.

According to the EIA, East Coast refineries ran at 100% capability in June and July.

“Last week, they operated at 102% of capacity,” Lipow stated. “No more supply is forthcoming from the four East Coast refineries.”

New England’s diesel supply problems were worsened when a Canadian refinery in Newfoundland closed down in 2020 as the pandemic influenced on need.

The Midwest is likewise seeing supply restraints, rising expenses for farmers.

“In visiting with a number of farmers, the consensus, of course, is that diesel costs are one more incursion into profitability,” Steenhoek stated. “As far as getting supplies, it looks like those areas most dependent upon the river are experiencing the biggest challenge. A couple of farmers told me diesel supply via their local vendor is day to day.”

In order for the Northeast to get more diesel, the fuel requires to be imported from another nation or a tanker from the Gulf Coast, however that is not permitted since of the Jones Act, likewise called the Merchant Marine Act of 1920, which restricts a foreign vessel from transferring all products in between 2 U.S. ports.

“The Jones Act requires all cargo transported between U.S. ports be carried on ships that are U.S. flagged and built, and mostly owned and crewed by Americans,” stated Captain Adil Ashiq, United States Western area executive for Marine Traffic.

According to Marine Traffic, the 55 Jones Act tankers are being utilized. One method to include more supply rapidly is for the Department of Homeland Security to momentarily waive the act for foreign vessels to move the fuel. The Jones Act was last waived for a tanker filled with diesel from the Gulf to go to hurricane-stricken Puerto Rico where the energy was required for power generators.

As an outcome of the little amount of U.S.-owned and ran tankers readily available for energy transportation, the rate to schedule a Jones Act tanker has to do with double that of a foreign-flagged tanker. For example, a Jones Act tanker carrying 300,000 barrels of diesel from Houston to Boston costs around 16 cents per gallon. If the Jones Act was waived, a foreign flag tanker bring the exact same quantity of fuel and heading to the similar place is approximated to cost half, 8 cents per gallon. This 8-cent per gallon distinction equates into a $1 million cost savings per tanker. This is among the reasons that energy traders prefer utilizing foreign flag tankers versus Jones Act tankers.

“If the [Biden] administration wishes to renew New England gas or extract stocks at the cost of exports, they require to waive the Jones Act for fine-tuned items filling on the Gulf Coast for shipment to New York, New Jersey, and New England,” Lipow stated. “Unfortunately, I don’t think they will do it until it is too late.”

Traders are diverting tankers far from Europe to the U.S. since the rate of U.S. diesel is now greater than in Europe so they can make a bigger revenue. So far, 2 tankers have actually gotten here and unloaded.

According to Marine Traffic, the tanker Thundercat was initially predestined for the Netherlands after being packed in the Middle East with about 650,000 barrels (the equivalent of 27 million gallons) of diesel. It went to NewYork Another tanker, Proteus Jessica, packed in the Singapore location with a comparable diesel supply likewise headed to New York.

For areas consisting of New England, competitors with Europe for diesel products will heighten next year when an EU restriction on Russian refined item purchases is carried out, Lipow stated. Diesel exports are of specific interest with the date of February 5, 2023, when the EU sanctions on Russian refined oil items start, stated BIMCO’s primary shipping expert Niels Rasmussen, including that 90% of the EU’s import volumes are diesel.

“The EU must replace on average 2 million tons of diesel imports from Russia,” Rasmussen stated. “In addition, the International Energy Agency has estimated that the EU’s demand for refined products will increase by 300,000-500,000 barrels per day during winter to meet heating demands.”

Correction: This story has actually been upgraded to show that the right variety of active Jones Act vessels is 55.