US Diesel Shortage is Result of Washington's Brazen Policies, Analyst Says

Earlier this week, fuel supplier Mansfield Energy warned about an upcoming diesel fuel shortage in the southeastern region of the US. According to the company, consumers may feel pain at the pump, while some cities might run dry on diesel for a few days.

"We have a real energy crisis which has nothing to do with the geopolitical events of this year," Alex Krainer, market analyst, researcher and founder of Krainer Analytics, and creator of I-System Trend Following, told Sputnik. "That is namely, that the production of crude oil from conventional sources has been declining now for many years. And depending on who you ask, it's between 4% and 9% per year. (…) American domestic production [through fracking] is suitable for the production of gasoline, but not diesel. To produce diesel, you need heavy crude oil. And for that, you need oil from Venezuela, Nigeria, and Mexico as well. And this market has grown very tight. And then the further problems have been sanctions imposed on Venezuela, loss of dominance in the Middle East. And, of course, sanctions against Russia."

According to Krainer, US society is facing a serious problem, as it is basically structured around cheap oil. Not only is industry energy-intensive, but also the organization of American towns and cities is very spaced out, he explained.

"People drive long distances, commuting to and from work," the researcher elaborated. "That entails very heavy consumption of fuel. Americans are used to very abundant fuel for heating in the winter and for air conditioning in the summer. And the whole way of American life heavily depends on abundant, cheap energy. So this all slowly comes to an end."

Currently, the US is facing one of the biggest shortages of diesel since 2008, as demand is surging ahead of winter, with only 25 days of supply left. The fuel prices have already increased by 33% for November deliveries.

On October 12, the EIA warned that many households across the United States "are likely to spend more on energy in the winter of 2022–23 compared with recent winters." According to the agency's estimates, the price for heating oil could rise by up to 40% if the 2022/2023 winter is 10% colder than usual.

Among the probable reasons for diesel shortages, the press cites the reduction of US refining capacity due to the COVID pandemic; decreased availability of refineries due to seasonal maintenance; October refinery strikes in France that stripped the world markets of a considerable amount of the much-needed commodity; and, above all, the West's sweeping sanctions on Russia's petroleum products over the latter's special operation to demilitarize and de-Nazify Ukraine.

Make no mistake, the current crunch is by no means a temporary problem, highlighted Krainer.

"This will be with us for many years, and I think it might require a very radical reorganization of life in the United States, where a population might have to go back to living in more densely populated cities," he said. "Americans have also, because of the availability of cheap, abundant energy, neglected developing an efficient public transport system. Americans prefer to drive cars, and every family has at least one or two or three cars. And they're not used to relying on public transport. And I think that this is going to have to change as well."

The analyst noted that the US political establishment appears to realize the scale of the emerging perfect storm: Washington is trying to force other nations around the world to continue providing cheap and abundant oil to the US. The Biden administration even made some efforts to mend ties with Venezuela to get access to its heavy crude, according to Krainer. However, most of these measures – if they prove successful – could at best buy a little more time for the US, he noted. The analyst argued that structural changes are inevitable for the US, and the sooner Washington starts to implement them, the better. Still, he is "not terribly optimistic" about that.

Europe is Running Out of Diesel Too

Meanwhile, the diesel shortage problem is not limited to the US: it is well felt in the EU too. The loss of Russian diesel supply and the disruption of fuel production in France due to strikes have left some European countries short of middle distillates.

The diesel shortage is likely to accelerate already soaring inflation both in the US and Europe, warned Krainer. However, instead of starting to solve the problem and, for instance, lifting energy sanctions on Russia, the West is continuing to shoot itself in the foot again and again, according to the researcher.

"The fact that now European leaders in their effort to combat inflation are thinking about price caps and price controls is probably going to make things a lot worse," Krainer said. "Economic history is full of cases of political leadership trying to fight inflation by limiting prices, by trying to cap the prices of commodities, of products, and so forth. That never worked. That always makes things worse. It always leads to shortages. So, I think that in Europe we'll see this in more expensive fuel, obviously, but also more expensive food and more expensive costs of living."

Ultimately, the energy crisis is going to exacerbate social pressures, which are already on the verge of erupting into a social uprising, according to the analyst. "The ultimate culprit is political leadership that is incompetent and that is trying to use the same measures that have proven very ineffective for centuries now," he concluded.