Diesel Shortage Squeezes Farmers and Homeowners One National Supplier Declares a “Code Red.” Its Gonna be Painful

HNewsWire: While the world's attention has been focused on crude oil and gasoline in recent weeks, we have been warning readers about a much more serious crisis brewing in diesel, a source of energy that is critical to keeping the "just in time" world running smoothly.

Today, the presidents of one of the world's largest commodities trading businesses and the world's largest independent oil trader talked at the FT Commodities Global Summit in Lausanne, Switzerland.

According to the corporate leaders, up to 3 million barrels of oil and its products could be lost from Russia as a result of sanctions, which is consistent with previous estimates, and warned that global markets are facing a diesel squeeze, with Europe facing the greatest risk of a "systemic" shortage that could lead to fuel rationing.

"For everyone, the biggest difficulty will be gasoline supply." "Europe gets nearly half of its diesel from Russia and half from the Middle East," said Russell Hardy, CEO of Swiss oil trader Vitol. "There is an ongoing diesel scarcity."

According to the Financial Times, which reported on their comments, these imports indicate that Russian supplies account for around 15% of Europe's diesel consumption.

According to Hardy, the increased use of diesel over gasoline in Europe has led to fuel shortages. He also stated that, in response to rising costs, refineries may expand diesel output at the expense of other oil-derived items in order to maintain supply, but he warned that rationing was a possibility.

"Diesel is not just a European problem; it is a global one," said Torbjorn Tornqvist, co-founder and head of Geneva-based Gunvor Group. It truly is." Tornqvist also warned that European gas markets were no longer functioning properly, owing to traders' demand for cash to fund bank hedging contracts. "I think it's broken." "It truly is," he stated. "I never envisioned someone saying, 'Oh, gas has plummeted to 100 per megawatt hour, it's incredibly cheap.'"

Gas futures linked to TTF, Europe's wholesale gas price, varied from around €70 per megawatt hour before Russia's invasion of Ukraine to more than €230 two weeks ago, before dipping below €100 this week. Prior to May 2021, European gas costs per megawatt hour were less than €20.

As previously reported, Europe's leading energy dealers have urged governments and central banks to provide emergency liquidity to keep gas and electricity markets operational, as big price swings triggered by the Ukraine crisis have put pressure on commodity markets. According to Hardy, traders must give €80 in cash to convey a cargo equivalent to one megawatt hour of liquefied natural gas priced at €97, putting a strain on their financial necessities.

Worse, hinting that Europe is in for an even colder winter, Tornqvist stated that European utilities would struggle to fill gas storage for next winter owing to the "paralyzed" position of the gas spot market unless authorities step in to issue assurances to protect customers from price volatility.

Returning to diesel, Bloomberg's Javier Blas tweeted a handful of today's FT commodities summit's worst remarks:

"The fuel market is really tight," Trafigura CEO Jeremy Weir said. It will become more constrained, very definitely resulting in stock outs "refers to when gas stations run out of fuel.

"Europe is running out of diesel," warns Gunvor's CEO. "The thing that everyone will be concerned about is gasoline availability," says Vitol CEO. Without diesel, not only would European traffic halt, but most, if not all, US truck-based logistical support and supply networks would be rendered unworkable. As a result, the world economy will suffer.

A diesel fuel scarcity has left a broad portion of the country prepared for a difficult winter. Diesel inventories in the United States are at their lowest point in 70 years as winter approaches, causing concern across a wide range of consumers and companies.

Soybean farmers in Iowa and the rest of the Midwest are battling to remain afloat, while politicians in New England are pleading with the administration to release fuel from the country's emergency home heating oil stocks.

Mansfield Energy, a major national diesel supplier in the southeast, recently declared a "code red," warning that several terminals were running out of fuel, forcing supply trucks to reroute elsewhere.

Before placing new orders, industrial clients were encouraged to offer three days' notice. In New England, home heating oil suppliers are facing similar issues.

"This is the lowest diesel stockpile we've seen at this time of year since 1951," said Andrew Lipow, an oil industry expert based in Houston.

"It's extremely worrying, given that demand is four times what it was four years ago." Diesel is the economy's workhorse, powering the majority of significant enterprises.

Businesses rely on it to carry commodities by truck, train, and ship, and roughly one in every five residences in the northeast uses diesel for heating oil.

This season's price increases are devastating, forcing up the cost of food and other commodities. According to AAA, the average price at the pump is $5.36 a gallon, up from $3.64 a year ago.

According to the U.S. Energy Information Agency's winter prediction, the cost of heating a house using diesel-based home heating oil is expected to rise 27 percent over last year.

"The supply is moving to the locations that will pay the greatest money for it, and we are having to pay a large premium in New England," said Kate Childs, vice president of Tuxis-Fuel, Ohr's a Connecticut supplier.

She claims that some of her delivery vehicles are now forced to go from terminal to terminal in order to locate adequate fuel to satisfy their orders.

A number of problems have contributed to the crisis. A increase in demand as the economy recovered from the epidemic coincided with a sharp drop in world supply caused by sanctions imposed on Russia in response to its invasion of Ukraine.

In terms of gasoline supplies, the United States is increasingly competing with Europe. The problem is exacerbated by the recent closure of aging refineries in the United States, which has cut the quantity of diesel produced here by 1 million barrels per day, or around 6%.

According to industry officials, new refineries are unlikely to take their place. Building and operating such infrastructure is costly, and it is often viable only after decades of operation.

At a time when the country is shifting away from fossil fuels, investors are skeptical of such initiatives.

With winter approaching and Europe poised to impose a full import embargo on Russian petroleum products, the rush to get adequate gasoline for American companies and consumers is resulting in significant price increases and extremely problematic market dynamics.

According to monitoring data obtained by Reuters, two tankers stocked with diesel in the Middle East and on their way to transfer it across the Mediterranean to Europe were rerouted to New York Harbor in October.

Even though Europe is paying exorbitant gasoline prices, purchasers in the United States were prepared to spend extra to prevent disruptions. Such tactics keep the supply flowing, but at a hefty cost.

More than 30 New England politicians, mostly Democrats, are urging President Joe Biden to release gasoline from the Northeast Home Heating Oil Reserve, which stocks approximately a 10-day supply of fuel to be accessible in the case of a supply emergency.

Their letters warn that households are at risk of not being able to keep their houses warm this winter.

As winter weather approaches, the administration has indicated that a release from the reserve is likely. It has not been utilized since 2012, when it was used to supply fuel to emergency responders during Hurricane Sandy.

The government has been meeting with governors to discuss how to safeguard fuel supplies. It is deferring a release from the reserve for the time being in order to have a little quantity of extra gasoline accessible if situations worsen due to extreme cold weather or an urgent supply chain issue.

Biden has limited choices for swiftly increasing such fuel supply. The White House has proposed limiting exports of domestically produced fuel and natural gas, which the sector believes could cause instability in energy markets if other nations respond.

Officials in the oil business were braced for Biden to make such a move during an election in which Democrats campaigned on voter outrage over windfall profits from oil companies.

"If they were going to take the severe market-altering measure of banning exports, it would have made more sense for them to try and do that before the election," said Stephen Brown, a consultant to energy businesses at RBJ Strategies.

Nothing has been taken off the table, according to administration sources, and the White House is getting increasingly dissatisfied with oil CEOs' failure to voluntarily increase their domestic stockpiles.

"We have been calling on oil corporations for months to address low inventory levels on the East Coast, and their ongoing inactivity — even as they post record profits — is unacceptable," White House spokesman Abdullah Hasan said.

"We are actively watching the situation and will continue to utilize all available options to decrease costs and safeguard American customers."