Northeast Diesel Shortage: What’s Driving the Quiet Fuel Crunch

Why the Northeast is quietly running out of diesel

The U.S. East Coast is entering the winter season with diesel inventories at their lowest seasonal level on record, according to Energy Information Administration data. The shortage is pushing prices higher across the Northeast and raising new concerns for truck drivers and carriers that depend on a steady supply of fuel.

The pressure is not limited to the retail pump. Diesel-to-crude crack spreads — a measure of the margin refiners receive for turning crude oil into diesel — have reached levels never previously recorded. Those margins reflect how tight the market has become, particularly for distillate fuels such as diesel and heating oil.

East Coast diesel inventories have fallen by more than half from January, while the latest weekly data showed another significant decline in regional stocks. The Lower Atlantic recorded one of the sharpest week-to-week drops, while inventories in New England and the Central Atlantic also moved lower.

The inventory situation is especially important because the Northeast relies heavily on diesel during the winter. The same fuel supply supports trucking, heating oil deliveries, railroads, construction activity and other industrial operations. A tight diesel market can therefore affect both transportation costs and household heating bills.

Tom Kloza, global head of energy analysis at OPIS, described conditions in the Northeast as extremely strained. He said prices may remain elevated for months because supplies have not returned to normal, and inventories will eventually have to be rebuilt even after immediate demand is met.

Trucking faces uneven exposure. Most truckload carriers recover much of their fuel expense through fuel-surcharge programs. Those surcharges, however, generally apply only to loaded miles. Empty miles and backhaul miles — which can account for roughly 12% to 13% of total miles for truckload fleets — do not receive the same recovery.

That leaves carriers paying the full cost of diesel during a portion of their operations. Industry analyst Kingston said some trucking companies could begin reporting fuel-related earnings pressure as higher prices work through their financial results.

For drivers, the immediate concern is availability as much as price. Retail fuel providers Pilot Flying J and Love’s said they were not planning to restrict diesel purchases, but both companies were monitoring inventory conditions. Patrick DeHaan of GasBuddy also reported that fuel was being moved from the Great Lakes region into the Northeast, an unusual step that highlights the regional imbalance.

The East Coast’s supply vulnerability has been building for years. The region has lost roughly half of its refineries over the past 15 years, reducing refining capacity from about 1.64 million barrels per day in 2009 to approximately 818,000 barrels per day. Several facilities closed after financial problems, accidents and the broader decline in East Coast refining.

That leaves the Northeast increasingly dependent on fuel produced elsewhere, including the Gulf Coast. Much of that product moves north through the Colonial Pipeline, but the supply chain is not immediate. Fuel can take roughly 18 days to travel from Houston to the New York area, creating financial and logistical risks for companies moving product into the region.

Market structure adds to those risks. Diesel prices have been trading in backwardation, meaning near-term prices are higher than prices for future delivery. A trader sending fuel north may face a substantial price decline before the shipment arrives. That possibility can discourage companies from committing cargoes unless the price difference is large enough to offset the risk.

At the same time, overseas buyers are competing for U.S. refined products. Global diesel supply is estimated to be down about 8%, with roughly 2 million barrels per day removed from the market because of Russian refinery damage and disruptions in the Middle East. European refiners have been seeking replacement supplies for the fall, while demand from Latin America has also helped draw fuel out of the United States.

U.S. Gulf Coast refiners have responded to strong international prices by exporting more diesel. Those exports can be highly profitable, but they also reduce the amount of product immediately available to the Northeast. Domestic refineries are already operating near full capacity, leaving limited room to increase production quickly.

The situation is also affecting heating oil customers. Northeast households that rely on heating oil could face delivery costs approaching $1,000 for a standard 150-gallon shipment if diesel prices remain elevated. Higher fuel costs are ultimately passed through to consumers in the form of more expensive deliveries, transportation and everyday goods.

Some recent inventory signals suggest the pace of deterioration may be easing in parts of the region, but stocks remain far below normal seasonal levels. For trucking companies, that means fuel surcharges may provide only partial protection while diesel prices remain volatile and regional supply is tight.

Relief will depend on additional fuel moving into the Northeast, sustained refinery production and a reduction in competition from overseas buyers. Until inventories are rebuilt, carriers operating in the region should expect diesel costs — and the operational challenges associated with them — to remain a significant concern.