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As fuel prices soar, the US stockpile of diesel fuel, which is critical for the transportation industry and the economy as a whole, fell to a nearly two-decade low.
The nationwide inventory of distillate fuel oil, which includes both diesel and fuel oil, has dropped to around 104 million barrels, the lowest level since May 2005. East Coast diesel fuel inventories fell to 21.3 million barrels, or nearly two weeks' worth of supply, the lowest level since records began in 1990.
Diesel, dubbed the lifeblood of the world economy, is essential for the construction, mining, and agriculture industries. In 2020, the transportation sector alone used 122 million gallons of diesel per day.
And, unfortunately, industry insiders expect that rationing will take place this summer, particularly on the east coast. This inventory decrease is mostly due to diminished capabilities to convert oil into diesel, gasoline, and jet fuel and falling production levels.
Seven refineries have closed in the last three years, which processed a total of around 806,000 barrels of oil per day, leaving the US with 124 operational refineries, down more than 10% since 2016. Between 2020 and 2021, total operating refinery capacity in the United States fell 4.5% to 17.7 million barrels per day, the lowest level since 2013.
At the same time, bans on Russian fuels in the U.S. and Europe put export pressure on the American energy industry. Many countries are refusing to take Russian fuels, resulting in a global need for additional diesel. And because the U.S. is a major exporter of refined products, diesel exports are up.
As a result of the lower capacity and higher exports, only one thing can happen: US diesel inventories deplete, and consumer prices rise. In fact, UPS and Union Pacific, the two major American transportation and freight corporations, have increased their respective fuel surcharges to account for market volatility. Union Pacific, which transports freight by rail, increased its surcharge by 39% this month.
