‘No Slack’ Left In US Refineries As Diesel Tops $6.50 A Gallon

U.S. refineries have little room to absorb another supply shock as diesel prices keep climbing, an energy analyst told the Daily Caller News Foundation.

The national average price of diesel reached a record $6.51 a gallon Monday, up from $6.23 a week earlier and $3.70 a year ago, according to the American Automobile Association (AAA).

“There is no slack in the U.S. refining system,” Tom Kloza, chief energy adviser at Gulf Oil, told the DCNF.

“Refiners have been running above 95% of capacity for many months, shattering any previous streaks,” Kloza said. Running that close to capacity leaves the fuel system “subject to problems if there are any unplanned outages, fires, hurricanes, etc.”

Diesel has risen about $2.61 a gallon nationally since just before the military action against Iran at the end of February, adding roughly 37 cents to 44 cents a mile to truckers’ costs, Avery Vise, vice president of trucking at FTR Transportation Intelligence, told the DCNF.

Truckers who book loads one at a time through freight brokers, known as the spot market, pass those costs on quickly, Vise said.

“For capacity sourced in the spot market via freight brokers, the fuel costs are passed on to shippers basically right away because spot rates generally are intended to cover those costs,” he said.

Companies that hire truckers under contract pay fuel surcharges that are billed when the freight is delivered and usually paid within 30 to 60 days, Vise said. FTR has not analyzed whether shippers then pass those surcharges on to retailers.

The Department of Energy did not immediately respond to the DCNF’s request for comment.

The Energy Information Administration (EIA), which publishes a separate weekly average, put the price at $6.285 a gallon for the week of Sept. 14 and releases its next figure Tuesday.

Kloza told the trucking publication Overdrive on Sept. 15 that the U.S., Europe and Asia “could see diesel prices of $8-$10/gallon before this is all over.”

“I do believe that we could see ‘stupid’ prices for diesel of $7-$9/gallon but that would not be my base case,” Kloza told the DCNF.

“Another parabolic rally for diesel could happen if more Red Sea refineries are targeted by the Houthis or Iran,” he said. A hurricane in the Gulf of Mexico could also send prices sharply higher.

Reaching an $8 national average “really requires more supply shocks,” Kloza added.

“At the outset, $8 a gallon at the national level in time to affect holiday freight seems implausible, but so did $6.50 a gallon diesel eight months ago,” Vise said. “It is not clear that transportation fuel costs have ever affected retail prices enough to matter, but the premise of $8 diesel certainly raises that possibility.”