Today’s Entry: Submitted via talkback referencing a potential/looming diesel shortage after the election.
Bottom Line: Throughout the course of our extraordinary run of 40+ year high inflation, which we’ve been living under for a full year at this point, I’ve seldom talked about the impact of the price of diesel specifically. It’s not been meant as a slight to truckers, whom I’ve frequently heard from as many have implored me to focus on the issue more than I have. I’ve seen the prices, I’m sympathetic to your concerns as they’re all of our concerns. Currently, 72% of all US freight is moved by truckers – meaning only 28% of the stuff we buy would exist for us to purchase if not for truckers. They’re no doubt the backbone of commerce in this country. Anyway, the reason I’ve not spent much time covering the diesel market previously, is that the impact of the dramatic rise in price, a la all-energy prices under the Biden administration, has factored into our overall 40+ year high inflation rate which I have covered extensively. But what you’ve referenced and what we may soon face is more than just the inflation impact of the high cost of fuel. An actual shortage could derail the ability to even get most goods to market. And, just after the election and just before the holidays. So, what’s the deal with diesel?
The US Department of Energy has kept records on energy supplies since 1993. Last week’s reporting showed the lowest supply of diesel available on record, with just 25 days of diesel supply on hand. Industry reporting independent of the Department of Energy suggests we’ve not had so little diesel on hand in the US since 1951 – when the US population was only 40% of what it is today. By way of comparison, we average having over 70 days of diesel supplies entering this time of year. So having only a third of our usual supply, less than a month’s worth of what’s needed to keep the country on track, is concerning for multiple reasons. The first key consideration, beyond the immediate financial strain for many truckers, is what the impact of it will be on our already 40-year high inflation rate. The diesel market is priced on futures contracts for delivery. On the back of the recent record low supply reporting, a looming holiday shopping and shipping season and winter – wholesale prices for diesel futures have soared 38% and current prices, which are about to head higher when those November deliveries are felt at the pump, are already 9% higher than a month ago and 50% higher than the same time last year. When the energy which is responsible for delivering 72% of the stuff we buy is experiencing price increases like that, it’s going to have a meaningful impact on wholesale inflation which will eventually make its way to consumers. Even if we don’t have an outright disruption of the supply chain due to a shortage of available diesel – the impact on us via inflation will be significant. But then there is the bigger concern. What if there are outright shortages?
A quick search for diesel crisis will net you over 56 million results. You’ll find headlines like this from CNBC: The diesel market is in a perfect storm as prices surge, supply dwindles ahead of winter. In the story, among many other factors they cite this: Diesel inventories in the New York/New England markets are facing an acute crisis. That's fun. Not just any crisis but an acute one. And what’s driving the “acute” crisis? It’s all about supply. As I’ve cited many times over the past 21+ months, President Biden’s day one executive actions included signing an executive order to kill the Keystone XL pipeline and by the end of the first week he’d signed additional executive actions inhibiting US energy production and supply. Subsequently, within a week of Joe Biden becoming President of the United States, our country went from being energy independent, to being reliant of foreign sources of energy. That of course, was the first major catalyst bringing about our 40+ year high inflation rate. But what’s different now is the one-two-three punch of US supplies continuing to be artificially limited by the administration while demand has risen, combined with the impact of the Russian energy ban, while entering the highest demand season.
What’s clear is that the already stressed diesel market gets worse before it gets better, what remains to be seen is the overall extent of the looming crisis.
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