The U.S. Administration is considering the potential release of diesel from a rarely used emergency stockpile, a senior White House official told CNN on Monday, as President Biden scrambles to tame soaring fuel prices amid low inventory levels ahead of the summer driving season.
Yet, the small volume of Northeast Home Heating Oil Reserve—containing just 1 million barrels of diesel—will not be enough to solve the tightness in the diesel market, analysts told CNN.
Prices of diesel and gasoline have surged to records this month, and there is no immediate fix to the fundamental tightness in the U.S. fuel market, where gasoline and distillate inventories are at multi-year lows and at record lows in the Northeast.
The price of diesel in the U.S. recorded its highest average ever, at $5.577 on May 18, per AAA data. As of May 23, the price hasn't dropped off much and stood at $5.554 nationwide, up from $3.178 this time last year.
In the Northeast—where the diesel crunch is most acute—prices jumped last week to more than $6.30/gal, according to the EIA's Gasoline and Diesel Fuel Update. On May 16, the average retail diesel price was $6.43/gal in the New England region and $6.36/gal in the Central Atlantic region, increases of 78% and 68%, respectively, since the beginning of the year. Retail diesel prices in these regions are nearly equal to California's average of $6.47/gal, the EIA added.
Record-high diesel and gasoline prices are threatening economic growth, adding further upward pressure on U.S. inflation figures. As diesel prices impact every part of the economy, the fight against inflation becomes more complicated for the Fed and an even more urgent issue for the Administration.
That Administration is now reportedly exploring the possibility of authorizing President Biden to release diesel stocks from the Northeast Home Heating Oil Reserve, the White House official told CNN.
A diesel reserve release would not solve the diesel crunch, analysts say.
"It's a band-aid -- one that isn't going to last very long and when it comes off the injury is not healing," Andy Lipow, president of Lipow Oil Associates, told CNN.
By Tsvetana Paraskova for Oilprice.com
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The world has hardly any spare oil and petroleum products capacity so all these releases are a waste of time since they will have eventually to be replaced probably at higher prices.
The only solution is immediate and extensive investments globally for at least ten years in expanding production capacity and that takes a minimum of five years to reach fruition.
High prices of Crude oil and petroleum products are here to stay well into the future. The only way to tame them is a global demand destruction but this will come at the expense of global economic growth and a harsh recession.
What a mess the environmental activists, the hapless IEA and the inept EU have got the world into? They wanted to save the world from climate change by ditching fossil fuels but they may well end up plunging the world in both its worst ever energy crisis and a most disastrous food crisis to boot.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London