California is expected to avoid what is feared there will be a storm over diesel fuel prices and availability for part of the US this winter.
According to the California Energy Commission, the Golden State’s supply of this fuel, which is used to bring most goods to market on commercial trucks and trains, has rebounded over the past month.
That’s good news for local businesses, which have seen fuel costs roughly double over the past two years at a time when firms are under pressure from others for rapid cost inflation.
“After wages, our biggest expense is diesel,” said Gregg Stumbaugh of Biagi Bros. As corporate equipment director for the Napa-based logistics and warehousing company, he manages a fleet of nearly 300 Class 8 semi-trucks across seven states. 28 of those trucks will run on compressed natural gas, and one is an all-electric big rig that’s part of a test project.
Gasoline and diesel costs have risen sharply since autumn 2020 after plummeting in the early months of the pandemic.
In California, the average diesel retail price peaked at $6.92 a gallon on June 20, up 138% from $3.24 two years ago and 69% above the average of $4.10 a year earlier according to figures from the US Energy Information Administration.
But since then, the price has fallen 12% to $6.10 on Monday. But that’s still 88% higher than $3.25 two years ago and almost 28% higher than last year’s $4.78 at this point.
At the same time, the state’s average for regular unleaded gasoline peaked at $6.27 on June 13 and has fallen 18% since Monday to $5.14 a gallon. However, it remained 70% higher than $3.03 two years ago and 13% higher than $4.55 a year ago.
“We will see diesel and fuel supplies return to more normal levels in the coming weeks,” said Kevin Slagle, spokesman for the Western States Petroleum Association, a trade group for extractors, refiners and retailers in California, Oregon, Washington, and Nevada Arizona. “California and the West haven’t really experienced these potential bottlenecks like parts of the East Coast, largely because East Coast refineries ship fuel to Europe.”
“Lowest They Ever Remembered”
News that diesel shipments across the country have fallen to less than a month has made headlines in recent weeks.
However, US Department of Energy officials have dismissed that interpretation of the data, noting that stockpiles ranged from as high as about 50 days during the lack of activity early in the pandemic to less than 25 days of supply, which the Energy Information said Administration noted in mid-November.
However, Mark Finley, a petroleum industry economist at Rice University, is once again sounding the alarm. During a Tuesday appearance on CNBC, he said refinery shutdowns in the US, China and Europe, in addition to international trade disruptions from the Russia-Ukraine war, continue to push the US into a dire diesel situation.
“Storage levels for this time of year are at their lowest on record,” Finley said on the network’s The Exchange show.
In the week ended November 11, US diesel inventories were actually 14.1% lower than the same time a year ago and have been below the five-year pattern for seasonal supply fluctuations since January, according to government figures.
In New England, inventories are much tighter — 51.9% lower than a year ago.
In this region, refinery oil distillates contain not only diesel for transportation and manufacturing facilities, but also fuel oil for households and businesses.
Early forecasts see potential for a “polar vortex” weather pattern that could plummet temperatures in the Northeast. In that case, demand for heating oil would skyrocket, putting pressure on refinery production of diesel.
Finley said higher prices embedded in goods and services have already resulted in a $100 billion impact on the US economy this year.
California gets help from renewable fuels
But California diesel stocks, which were below historic five-year lows earlier this fall, have jumped back into typical range in recent weeks, according to state energy officials.
As of mid-November, the state’s diesel inventories were up 4.6% year over year, according to the California Energy Commission, and surpassed a historic five-year high this month.
“Some of the refinery maintenance — planned and unplanned — in California between the spring and fall impacted diesel fuel production, but to a lesser extent than gasoline,” commission officials told the Business Journal in an email.
However, according to the Energy Commission, California’s standard low-carbon fuel program is helping to support California’s diesel supply while creating some production bottlenecks.