Northeast Diesel Shortage: What’s Driving the Quiet Fuel Crisis
Why the Northeast is quietly running out of diesel
Diesel supplies are tightening across the United States, but the strain is most visible on the East Coast, where inventories have fallen to historically low levels and regional fuel prices have surged.
The East Coast, identified by the Energy Information Administration as Petroleum Administration for Defense District 1, or PADD 1, has become increasingly dependent on fuel shipped from other regions. That dependence is now being tested by reduced refining capacity, strong overseas demand and transportation constraints.
The latest EIA data showed about 20.3 million barrels of ultra-low sulfur diesel in PADD 1 inventories. That was the lowest level since inventory readings moved around 20 million barrels in March 2015. The comparison is not exact: during the winters of 2014 and 2015, unusually cold weather increased demand for heating oil, and some distillate fuel may have been directed into that market rather than recorded as diesel.
Even with that qualification, the current supply position is unusually tight. Ultra-low sulfur diesel is now used across a much broader market than it was during those earlier periods, including trucking, agriculture, construction, rail and other industrial operations.
Separate Department of Energy figures showed that the East Coast held less than 52 million barrels of diesel in May, compared with a typical level of roughly 62 million barrels for that time of year. The figures reflect different inventory categories, but both point to the same problem: regional stocks are well below normal.
A region with fewer refineries
The East Coast has lost a substantial portion of its refining capacity over the past 15 years. The number of refineries in the region has fallen by about half, leaving approximately seven facilities and about 818,000 barrels per day of processing capacity, compared with 1.64 million barrels per day in 2009.
Several shutdowns followed the financial crisis, while other facilities closed after financial problems, fires or pandemic-related disruptions. A major Philadelphia refinery closed in 2019 after a fire, and a Newfoundland refinery shut down in 2020.
Those closures made the Northeast more reliant on supplies from the Gulf Coast and imports. That arrangement can work when transportation is reliable and fuel markets are balanced. It becomes more vulnerable when demand rises or competing buyers are willing to pay more for the same barrels.
Colonial Pipeline remains important
The Colonial Pipeline is a central part of the East Coast fuel network. It carries diesel, gasoline and other refined products from the Gulf Coast to the mid-Atlantic and Northeast.
The pipeline is operating under allocation, according to press reports. Colonial frequently has more demand for space than it can accommodate, so shippers are assigned portions of the available capacity. In this case, however, reports indicate that allocations are less severe than usual. That may reflect lower nominations from shippers, suggesting that some suppliers are not sending their normal volumes into the system.
Moving fuel through the pipeline also involves financial risk. A shipment can take about 18 days to travel from the Houston area to the New York region. During that period, prices can change significantly. In a market known as backwardation, the current price is higher than the price available for future delivery. That structure can discourage traders from committing fuel to a long transit if they risk selling it later at a lower price.
The normal price difference between Gulf Coast diesel and diesel in the New York Harbor market is often only a few cents per gallon. The spread recently widened to about 66 cents, but that was still not always enough to pull fuel away from more profitable export markets.
Global demand is competing for U.S. diesel
Demand outside the United States has added to the pressure. Europe is a major diesel consumer and has historically relied in part on Russian supplies. As European buyers reduce their purchases of Russian fuel, they have turned to other sources, including the United States. Latin American demand has also remained strong.
Gulf Coast refiners have responded to those prices by exporting more diesel. Waterborne diesel exports from the Gulf Coast reached record levels for the period covered by available data, according to Vortexa. Every cargo sold overseas is fuel that is not immediately available to domestic buyers, although exports are influenced by market prices, contracts and refinery economics.
Global demand typically strengthens around October as Northern Hemisphere harvest activity overlaps with the start of winter heating demand and Southern Hemisphere planting. That seasonal pattern raises the importance of rebuilding inventories before colder weather arrives.
What it means for truckers
Diesel prices have become a major operating expense for carriers. The national average reached about $5.62 per gallon in the cited Department of Energy data, while the East Coast average was about $5.90. Prices in New England and the mid-Atlantic were up sharply from the beginning of the year.
Truckload carriers can often recover much of the increase through fuel-surcharge programs. That protection is incomplete, however. Empty miles and backhaul miles do not generally generate surcharge revenue. Those miles can account for roughly 12% to 13% of total miles for some truckload fleets, leaving carriers to absorb the additional cost.
The impact also varies by location. Pilot Flying J said most eastern markets had extremely low diesel inventories and noted refinery-related tightness in the St. Louis and Indianapolis markets. The company said it was securing additional supply and moving fuel with its fleet. Pilot and Love’s said they were monitoring conditions and did not plan to restrict diesel purchases at the time.
Retail fuel reports also indicated that diesel was being moved from the Great Lakes region into the Northeast, an unusual response that underscored the regional imbalance.
There is no clear timetable for relief. Higher prices may attract additional imports and encourage suppliers to redirect fuel toward the Northeast, but inventories will also need to be rebuilt. Until that happens, professional drivers and carriers should expect the region to remain especially sensitive to refinery outages, pipeline disruptions, export demand and seasonal consumption.
