The U.S. government is pressing refiners at home and abroad to increase diesel production as record fuel prices strain transportation, agriculture and industry, but domestic plants are already operating close to full capacity.
MONTREAL (Oil Monster): The United States is pressing refiners to squeeze more diesel from an already heavily utilized refining system as high fuel prices remain a major pressure point for the economy.
Energy Department Under Secretary Kyle Haustveit said Tuesday that officials are working with refiners to identify additional ways to increase throughput and bring more diesel to market.
The effort comes as U.S. retail diesel prices average about $6.32 per gallon, according to AAA, near historically high levels following months of disruption to global fuel supply.
The challenge is that there is limited spare refining capacity available inside the United States.
American Petroleum Institute Chief Executive Mike Sommers told Reuters that U.S. refiners are currently running at approximately 95% to 100% of capacity.
Some refiners have also postponed planned maintenance to take advantage of strong margins and keep more fuel flowing into the market.
That leaves relatively little room for a rapid increase in diesel production from existing facilities.
Expanding or restarting refining capacity is also capital intensive and can take months or years depending on the condition and complexity of the facility.
The U.S. diesel problem is increasingly a refining-capacity problem, not simply a crude-supply problem.
More crude oil does not automatically translate into more diesel. Refineries must have the available processing capacity, appropriate crude slate and operating flexibility to convert additional feedstock into middle distillates.
With U.S. facilities already running close to maximum rates, emergency releases may ease supply pressure at the margin but cannot quickly create substantial new refining capacity.
Energy Secretary Chris Wright said the administration is discussing whether some idle refinery capacity could be brought back into service.
"We are talking about reopening every refinery we can," Wright said Tuesday, while cautioning that not every potential restart will prove practical.
The administration has also invoked the Defense Production Act as part of its effort to expand domestic fuel-production capacity.
Last week, Vice President JD Vance said the government would use the law to support an expansion at a Texas refinery operated by Delek US Holdings.
Restarting idled plants or adding processing capacity, however, requires significant investment and cannot provide immediate large-scale relief.
The administration is also working with international partners to increase refined-product output.
Wright said the United States is discussing additional refining activity with India, which operates some of the world's largest and most sophisticated refinery complexes.
Increasing output from overseas refineries could add diesel to global markets and indirectly ease pressure on U.S. supplies.
Washington has also been pressing other producing and refining countries to increase petroleum-product availability.
The Trump administration had pushed European and other industrialized countries to release approximately 50 million barrels of diesel from emergency reserves.
The resulting International Energy Agency agreement fell short of that level.
Instead, the IEA agreed last week to accelerate remaining crude oil and petroleum-product volumes already committed under its March emergency action, including more than 20 million barrels of diesel.
The diesel is expected to be released as quickly as individual member countries and market conditions allow.
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IEA Executive Director Fatih Birol said Tuesday that the agency is prepared to coordinate another emergency stock release if member governments determine that additional intervention is necessary.
The agency's immediate focus remains getting previously committed diesel volumes onto the market.
IEA members have already released the majority of the record emergency oil volumes committed earlier this year following major disruptions to global energy supply.
The combination of emergency stock releases and efforts to raise refinery output highlights how governments are increasingly focusing on refined-product availability rather than crude supply alone.
Diesel prices have surged as the conflict involving Iran has disrupted Middle Eastern energy flows while Ukrainian attacks on Russian refineries have reduced another important source of global fuel supply.
Diesel is particularly sensitive to refinery disruptions because it is a finished petroleum product rather than a raw feedstock.
The fuel is critical to trucking, agriculture, construction, shipping and industrial activity, meaning sustained high prices can raise costs across the broader economy.
The United States has taken additional steps aimed at increasing global diesel supply, including temporarily easing restrictions affecting Russian diesel.
Energy Secretary Wright said any Russian diesel reaching the United States would most likely move into New England, although there is no guarantee that substantial volumes will arrive.
Russian cargoes have already begun returning to some traditional international markets following the temporary sanctions relief.
Industry officials are also watching China, which has significant refining capacity but tightly controls petroleum-product exports.
Sommers said additional Chinese diesel exports could play an important role in bringing down longer-term global prices.
Whether Beijing increases export quotas remains uncertain.
The situation illustrates how diesel pricing now depends on refining and trade policy across multiple countries, not simply on U.S. production.
The government's effort to increase diesel output faces a basic physical constraint.
Refineries cannot indefinitely operate above their designed capacity, and delaying maintenance can only provide temporary additional production.
Meaningful capacity expansion requires investment, engineering work and time.
That means near-term relief is more likely to come from a combination of emergency stock releases, higher overseas refinery output, additional imports and improved global supply conditions rather than a major immediate increase in U.S. refinery production alone.
Earlier in the energy crisis, markets were primarily focused on whether enough crude oil could reach refiners.
The pressure has increasingly moved downstream.
Crude supply and Middle East export volumes have partially recovered, but diesel inventories and refinery availability remain tight.
That helps explain why governments are now pursuing several measures simultaneously: emergency diesel releases, refinery restarts, international production increases and temporary changes to fuel regulations.
The next meaningful improvement in diesel prices is therefore likely to depend less on additional crude production and more on whether global refiners can sustainably increase the amount of finished fuel they produce.
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Courtesy: www.reuters.com
