“Gas Stations Will Run Dry”: Catastrophic Scenario Emerging

As many as 3 million barrels of oil from Russia and its products could be lost because of sanctions, according to industry leaders, and Europe is the most threatened with a “systemic” shortage of diesel. Rationing may even be necessary.

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Russell Hardy, the CEO of Swiss oil trader Vitol explained, “The thing that everybody’s concerned about will be diesel supplies. Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. That systemic shortfall of diesel is there.”

Russian fuel accounts for about 15% of Europe’s diesel demand, the Financial Times reported.

The shift from gasoline consumption to diesel in Europe has contributed to fuel shortages, Hardy said. In addition, he noted that refineries may increase diesel output to adapt to higher prices, but stressed that rationing was a possible outcome in the event of shortages.

Torbjorn Tornqvist, chairman and co-founder of Gunvor Group in Geneva, explained: “Diesel is not just a European problem; this is a global problem. It really is.”

Furthermore, Tornqvist warned that the European gas markets were no longer functioning properly in light of the bank’s demands for cash to cover hedge positions. “I think it’s broken. It really is,” he stated. “I never thought that somebody could say ‘ah, gas has fallen below 100 per megawatt-hours is really cheap’.”

During Russia’s invasion of Ukraine, gas futures on TTF, the wholesale gas price in Europe, rose from about €70 a megawatt-hour to about €230 just two weeks ago, and then slid below €100 this week. Before May 2021, European gas prices were below €20 a megawatt-hour.

Europe’s biggest energy brokers have appealed to governments and central banks to grant emergency liquidity assistance to stabilize gas and power markets after sharp price moves triggered by the Ukraine crisis have stretched commodity markets. Hardy says traders have to provide 80 euros in cash to transport a cargo equivalent to a one-megawatt hour of liquefied natural gas priced at €97, exceeding their capital requirements.

In addition, Tornqvist said that if policymakers fail to provide guarantees that will protect gas buyers against sudden price fluctuations, Europe might face an even colder winter next winter given the “paralyzed” spot market for gas.

Javier Blas of Bloomberg tweeted a few of the more alarming quotes from the CEOs of the world’s energy companies at yesterday’s Financial Times commodities conference with regard to diesel:

Jeremy Weir, CEO of Trafigura: “The diesel market is extremely tight. It’s going to get tighter and will probably lead into stock outs” referring to when fuel stations run dry.

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The CEO of Gunvor: “Europe is so short of diesel”

The CEO of Vitol: “The thing that everybody’s concerned about will be diesel supplies”

We can safely assume, however, that without diesel, not only will traffic in Europe slow to a crawl, but many if not all US supply chains and logistical support will soon cease to function. The financial consequences will be severe for the world economy.

House Democrats, who know they will lose the midterm elections, have introduced a number of bills aimed at helping Americans pay for high gas prices. There are similarities between the plans and the one that provided $1,400 stimulus checks to millions last year during the pandemic.

During the last two weeks, the daily national average has exceeded $4 per gallon. Despite a seven-cent drop from a week ago, it remains 72 cents higher than a month ago and $1.37 higher than the same date last year.

A slight price drop at the pump was attributed by AAA to lower crude oil prices since last week. Lastly, the report said that gas demand was down, which is atypical for this time of year and could indicate that people are changing their driving habits.

Reps. Mike Thompson of California, John Larson of Connecticut and Lauren Underwood of Illinois propose giving individuals $100 per month or couples $200, plus $100 for each dependent, during the month when the nationwide gas price exceeds $4 a gallon. This rebate would be in place until the end of 2022.

Representative Peter DeFazio of Oregon introduced the Stop Gas Price Gouging Tax and Rebate Act. As an alternative to the national gas price average, the bill provides households with a monthly advance tax credit akin to the monthly child tax credit provided last year. Oil companies would be taxed for their “excessive corporate profits,” as DeFazio calls them.

On March 10, a similar bill was introduced that targets big oil companies as well, but requires Americans making the same income thresholds to receive quarterly payments.

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Companies producing or importing at least 300,000 barrels of oil each day, or those who did so in 2019, would be subject to the new tax.

Among the two main sponsors of the bill is Rep. Ro Khanna of California, who said the oil companies “will owe a per-barrel tax equal to 50 percent of the difference between the current price of a barrel of oil and the pre-pandemic average price per barrel between 2015 and 2019.”

Several large oil companies, including Exxon Mobil and Chevron, will be affected, but smaller oil companies will be exempt, according to Khanna.