Winter Fuel Outlook: U.S. Exporting a Record Amount of Crude and Fuel, as the USEC Sees Shortages

The U.S. is exported a record amount of crude and fuel, especially as recent as two weeks ago, while the U.S. East Coast is dealing with shortages of both diesel and gasoline.

Just last week, the Energy Information Administration (EIA) reported distillate inventories were at their lowest levels since 2008. But, what makes this intriguing is back in 2008 those distillate levels were low coming out of spring… while these distillate levels are low going into fall, which Forbes details is less ideal of a situation compared to 2008.

As we begin November, diesel prices have increased 33 percent for November deliveries and many expect that to continue to go higher.

Fuel Shortages in the U.S.

Diesel supply in the USEC and in the Northeast specifically, the thought of a potential rail strike lingering, as well as the drought that has been occurring regarding the Mississippi River which has led to more product being pushed to truck and rail, have all contributed to higher fuel demand – with many calling on the federal government to step in with efforts to increase the supply.

“The National average price for diesel today is $5.30 per gallon and is expected to increase 15-20 cents in the next few weeks,” Andy Lipow, President of Lipow Oil Associates, LLC tells CNBC.

In addition to that, diesel inventories in the USEC are facing a crisis. In the New York/New England markets, diesel inventories are down over 50 percent since last year, and are at the lowest level since 1990, Lipow says. It should be noted that East Coast refineries are producing as much diesel as they are able to and also dependent on tankers and barges for supply – weather delays can cause a terminal to run out of product as well.

Now, for the Northeast to receive more fuel, that fuel needs to be imported from another country or from a tanker in the Gulf Coast – but that is not allowed because of the Jones Act.

What is the Jones Act?

The Jones Act prohibits a foreign vessel from transporting all goods between two 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,” Captain Adil Ashiq, United States Western Region Executive for MarineTraffic stated. 55 Jones Act tankers are currently being used.

The Department of Homeland Security does have the ability to temporarily waive the act for foreign vessels to move the fuel, which would be one way to quickly add more supply. However, the DHS told CNBC that it is “vital to maintain the strength of the American shipbuilding and maritime industries by requiring all maritime cargo transport between U.S. ports to occur on U.S. flagged vessels.”

So, as Lipow has stated, if the Biden Administration wants to replenish New England gasoline or distillate inventories at the expense of exports, they would need to waive the Jones Act for refined products loading on the Gulf Coast for delivery to New York, New Jersey, and New England. Many do not feel like this will happen until it’s too late.

Looking Ahead

Should you have any questions regarding this and how it could impact your shipments, please reach out to our team today. Additionally, we have our weekly market updates that can provide you with relevant freight news, updates, developments across the industry, and more.

 

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