(Bloomberg) — The New York area is running so low on fuel that the Biden administration is warning of government action to address exports and suppliers are resorting to expensive US tankers to restock the region.
Inventories of East Coast distillates including diesel are languishing at the seasonal lowest levels ever, while gasoline stockpiles in the New York Harbor area emerged from historic lows only last week. The administration could take “emergency measures” if refiners don’t limit exports to replenish domestic stockpiles, Energy Secretary Jennifer Granholm wrote in a letter last week to companies including Exxon Mobil Corp., Valero Energy Corp., and Phillips 66.
Recently, several US-flagged vessels also carried fuel to New York, a relatively rare move only economically viable when the arbitrage is wide enough. Gulf Coast refiners have been shipping a maximum amount of gasoline to the East Coast all summer on the fully booked Colonial pipeline.
But it may not be enough in a cold winter. Russian supplies that filled a critical gap during frigid weather last February won’t be available again after Moscow’s invasion of Ukraine triggered US sanctions. The closure of refineries on the East Coast, in Canada and in the Caribbean means the eastern US is more reliant on supply from Europe, which is facing a far worse energy crisis of its own.
And a supply crunch could come sooner than winter as the peak of Atlantic hurricane season nears, threatening disruptions to fuel supply. Though few storms have emerged so far, the most-active part of the season typically doesn’t begin until right around now.
Fuel supply on the East Coast is likely to remain precarious as Gulf Coast refineries begin scheduled maintenance in the fall. Even when supply is abundant, a dearth of pipelines and tankers means Gulf Coast refiners have limited options for sending gasoline and diesel to eastern markets.
While the average price of gasoline has dropped from a record of more than $5 a gallon in June, prices are still roughly $1.50 higher then when Biden took office. Diesel prices are back above $5 after falling steadily from a peak in June.
Still, US exports of crude and oil products rose to a record last week, with diesel leading the surge. Countries around the globe are hungrier than ever for US diesel as they seek alternatives to costly natural gas to run power plants.
As US fuel demand soars, market forces alone may fulfill the Biden administration’s wish to curb exports. Domestic diesel consumption rises at this time of year, drawing down stockpiles, as Midwest farmers snap up supply to power machines that harvest crops. The approach of summer in South America, the largest overseas buyer of US diesel, means rising hydropower generation will potentially trim the region’s need for US fuel.
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Source: finance.yahoo.com