The devastating cost of the coming diesel shortage
First let’s note that the problem is less than a month away, conveniently AFTER the Midterms.
With demand for diesel fuel at its highest point in over a decade, the Biden administration says nationwide supply is “unacceptably low.”
Diesel stockpiles in the U.S. are reportedly at their lowest point since 2008, with only enough fuel for a 25-day supply, according to a recent report from Bloomberg. Demand is also said to be at its highest point since 2007, creating a dangerous supply/demand combination that’s causing spikes in pricing. The Biden administration called the nationwide diesel supply “unacceptably low” and is looking at all options to build up the national supply to help reduce prices.
According to U.S. Energy Information Administration (EIA), the average price of diesel is at $5.34 per gallon. That’s an increase of $1.67 per gallon, compared to this time last year. The area getting hit the hardest is New England, where people burn diesel fuel for heat more than anywhere else in the country. There, stockpiles of diesel fuel are a third of what they normally are at this time of the year. However, the highest cost of diesel fuel is in California, where the average cost is almost $6.50 per gallon, an increase of almost $2.00 per gallon over this time last year.
Having created the problem in the first place the Brandon Mail Order Maladministration sounds the alarm. Karl Denninger of the Market Ticker Blog puts the coda on it:
It’s pretty basic, as I noted in Leverage about 10 years ago: Behind every unit of GDP is a unit of energy.
I’ve been doing a fair bit of traveling this summer and fall, and in fact am having some fun right now, as I did last weekend. There is a constant — the spread between diesel and regular gasoline has held right around $2.
I’ve never seen this before.
It portends very bad things.
You see, diesel isn’t just what you think of, although that’s bad enough. That is, big trucks without which you get….. nothing. Basically every item you buy from any place, anywhere, makes at least the last mile of that journey by truck. Most of it makes a very large percentage of its journey by either truck or train — both of which run primarily on diesel fuel.
That includes the gasoline you buy at the corner station.
So who thinks inflation pressure is going to come down? How about the people who still use heating oil this winter? Oh, that’s diesel incidentally. Same fuel. Exactly the same fuel — just no road tax, and dyed red so if you try to cheat and put it in a truck you can be caught.
“Well those fools should have converted by now!” you might say. Really? Have you looked at the price of natural gas lately? Propane?
Well just burn wood! If you live where you can. And then…… wait, isn’t this about “saving the planet”? I thought wood was…… dirty?
Here’s reality, like it or not.
That huge spread exists because the government — and not just ours — has declared war on the very reason we have had a rational cost of living for the last one hundred years. It has driven basically all of our advancement in that regard. It is responsible for all of the plastic things you have (look around you), all of the synthetic fibers (your couch, your bed, etc.) your shoes, your computer(s), your cellphones, the Internet and even the shingles on your house without which it rains inside as well as out.
Bernie Sanders thinks its “wrong” that this spread in prices exists.
Well, let me tell you a little story.
Back in the late 1990s I engaged Investment Bankers to decide what to do with MCSNet as the firm’s CEO. I had laid before me three basic options:
1. Attempt to take the company public, lever it up and expand it to the best of my ability at the most-rapid pace I could get away with, endeavoring to execute an IPO. This of course had great risk (if you try and fail the leverage will probably kill you) but also great potential reward (a billion was certainly possible, a hundred million easy.)
2. Sell it to whoever we could market it to in its current (very healthy) financial condition, unlevered.
3. Run it to deliberate destruction, extracting as much as possible but investing nothing.
I decided to execute on #2.
Read #3 however many times you need to until it sinks on for one simple reason: If the government had ever told me it was going to deliberately destroy my industry or even just my firm that is the only sane choice I could have made. #1 would be fraud under those conditions for which I’d go to prison and #2 would fail. Therefore #3 it would be.
Every single fossil fuel firm in America has been told this, and thus until and unless the government that did this is forced to both retract it and never be able to do it again #3 is what they are and will all do.
No other choice makes any sense at all.
You and I are directly responsible for this because many of you have directly demanded exactly this via your green energy fantasies and the rest of us have tolerated both those fantasies and the people promoting them.
This is the truth whether you like it or not, and the economic circumstances will continue to deteriorate until and unless it is stopped.
Tank up while you can.