How Dire Is the Diesel Situation?

Jim Rogers Agri-business

By Frank Giles

During the past couple of years, we’ve gotten accustomed to sticker shock as inflation has hit fertilizer, energy, food and more. Prices for diesel are up, and there have been concerns raised about looming diesel shortages. Diesel literally fuels agriculture and the transportation of food in this country.

It caught the public’s attention when headlines ran that there was only a 25-day supply of diesel in the United States. Some folks took that number literally that all the diesel engines would stop running 25 days from when they read that news. It is not quite that dire, since the supply figure is more of a moving scale of what’s in storage, not a literal countdown.

Diesel
America’s food supply is dependent on diesel to find its way from the field to the plate.

But the 25-day supply figure should still get our attention and send up warning signals. Stocks of diesel and other distillate fuel oils were just 106 million barrels on Oct. 21, the lowest for that time of year since the U.S. Energy Information Administration started collecting weekly data in 1982.

This is something that is being felt on your farm right now. Your tractors, trucks and other engines run on diesel, and it is costing a lot more to fill your tanks. The price has been running well over $5 per gallon for weeks. That is more than a dollar and a half higher than the year before.

CALL FOR ACTION

In November, American Farm Bureau President Zippy Duvall sent President Joe Biden a letter calling for more action to bolster domestic supplies of diesel. In the letter, he noted: “While geopolitical challenges, worldwide demand for distillates and seasonality play a role in energy supply and prices, so does public policy. That is why the American Farm Bureau supports increased domestic energy production, including more drilling, extraction and refining of our energy resources. By displacing imported petroleum, increased domestic production will enhance U.S. security and bring more supply online, reducing costs to all Americans.”

POSSIBLE SOLUTIONS

Demand for diesel has been huge as the world emerges from the COVID-19 pandemic. Last year, about 128 million gallons of diesel were consumed daily in the United States.

Brian Deese, director of the National Economic Council, said all options should be on the table to address low diesel inventories. The council is an office of the White House established to provide the president with advice on domestic and global economic affairs.

Deese has said there are a few tools at the president’s disposal to address the situation, like tapping into the Northeast Home Heating Oil Reserve. That might help chilly homeowners in the Northeast but would be a blip in supply on a national scale. A report by the Washington Post noted that diesel demand is so high that a million barrels from the reserve would be depleted within six hours.

There have been some calls to restrict diesel exports to bolster domestic supply. But that comes with a set of problems of its own, including alienating U.S. allies during a time of war.

That leaves refining capacity here in the United States, which has fallen by 2 million gallons of diesel per day since the start of the COVID-19 pandemic. We’ve not built a major refinery here since 1977. Chances are, that’s not likely to change anytime soon.

According to Alix Miller, president of the Florida Trucking Association, we need an “all of the above” strategy when it comes to diesel.

“In the short term, just having refiners resume a more normal production cycle, along with other market adjustments, should help boost diesel inventories,” Miller said. “It also means ramping up domestic oil production in the near-term, investing in alternative fuels such as renewable diesel and renewable natural gas and advancing the increased use of heavy-duty electric vehicles where technologically feasible and economically viable.”