Diesel is a vital fuel for the U.S. economy, powering not only agricultural and construction equipment but also the trucks, trains and boats that move goods across the country. Soaring diesel prices are likely to pass on to households, leading to the worst inflation crisis in the U.S. in four decades.
Diesel inventories in the Northeast have fallen to record lows in recent weeks due to factors such as the war in Ukraine and surging demand.
“The system is definitely under pressure,” the senior White House official said.
The impact of such a release will be limited by the relatively small size of the reserve, which contains just 1 million barrels of diesel — equivalent to a day’s supply in the region.
Andy Lipow, president of Lipow Oil Associates, told CNN: “It’s a small problem. It can take weeks or even months, but it doesn’t solve the underlying problem.”
Last used after Superstorm Sandy
Alarmed by the plummeting inventory and soaring prices, Biden officials began conducting extensive internal briefings and consulting with fuel retailers to better understand the situation, the official said.
The reserve was originally activated in 2000 to deal with a supply crunch caused by severe winter storms. In 2011, it switched from home heating oil to ultra-low-sulfur distillate, a cleaner-burning diesel used to power the engines of trucks, tractors and other vehicles.
“It’s a Band-Aid”
The senior White House official told CNN that Biden has asked officials to do the necessary groundwork to be ready to release fuel from the stockpile.
“We think this looks like the exact situation where a release should be considered, and that’s what the president directed,” the official said.
However, the reserves are relatively small and may only be purchased for time and in limited quantities.
By comparison, the Strategic Petroleum Reserve, the US emergency oil reserve, currently contains 420 million barrels of crude oil. This has reduced the fund for rainy days, despite a series of massive SPR launches during the Biden administration.
“It’s a Band-Aid — it doesn’t last long, and when it comes off, the injury doesn’t heal,” Lipo said of the diesel reserve.
Loss of Russian barrels
Diesel supply crunch is driven by a number of factors.
First, multiple refineries in the U.S. and Canada have been decommissioned in recent years, limiting the system’s ability to produce gasoline, diesel and jet fuel to meet demand.
Second, energy demand has rebounded from the Covid-19 collapse as people fly and drive more. Soaring jet fuel prices have incentivized refiners to produce more fuel instead of diesel.
Then the war in Ukraine and the ensuing sanctions further disrupted the situation.
Some Russian refineries have been partially or fully shut down as the West seeks to punish Moscow for invading Ukraine.
Analysts say the loss of Russian oil products has boosted U.S. diesel exports to Europe and elsewhere — just as domestic demand for diesel has increased.
Ease the crunch?
The good news is that there are signs that the tight diesel supply is easing, suggesting that Northeast reserves may not need to be released.
Additionally, Tom Kloza, global head of energy analysis at Oil Price Information Services, noted how the Colonial Pipeline, a key pipeline for delivering fuel to the Northeast, was fully subscribed after weeks of underutilization. of.
“My hunch is that we’re probably past the worst of it,” Kloza said.