Analysis by Sydney Casey
The oil industry is complex, and it can be hard for the average person to understand how it operates. This is especially true when it comes to understanding the current diesel supply shortage, high prices, and oil company profitability.
Michael Mansfield, CEO of Mansfield Energy, voiced these concerns in an interview with Fox & Friends Brian Kilmeade early yesterday morning. Mr. Mansfield said, “There is simply a shortage of product as compared to three years ago,” said CEO Michael Mansfield. He continued, “The economy has come back a great deal since the pandemic, but our refining capacity in the US is a little over a million barrels a day of less capacity. As a result, we have to import more or pay higher prices.”
But why are we seeing a shortage of product? Or, the better question is, why are refineries going offline? Since 2019, seven US refineries have shut production down, reducing US fuel production by 40 million gallons per day and burdening the remaining refiners to meet demand. Reasons refineries take production offline include maintenance issues, natural disasters such as fires or hurricanes, or low/negative profitability.
All of these factors, including refinery outages, supply and demand, and extreme backwardation that we are seeing today, cause fuel prices to fluctuate.
You may hear people say that oil companies are making huge profits while you’re paying through the nose at the pump. Or you might hear that they’re not making enough money and therefore have no incentive to increase production. But in reality, both statements are oversimplifications that don’t completely explain the real situation.
“I think there is a lot of misinformation about how this industry works and where profits are created or not created. The industry does an extraordinary job and is very innovative in trying to keep the country supplied. We are always working to educate our customers about this industry.”
The industry has undergone a lot of changes over the past few years, and one of the most significant shifts has been in how we think about diesel prices. The price of diesel is often much higher than other types of fuel, but this isn’t because oil companies are trying to rip you off—it’s because there are so many variables at play in this industry that affect the price of diesel.
Fuel prices are set by the global marketplace, not by oil companies. Refiners and oil producers have no more control over prices than you do – they can influence supply, but ultimately prices are set through millions of trades and exchanges happening every day throughout the free market.
So the next time you hear blame placed on any one cause for supply outages and high oil prices, remember there’s a lot of complexity when you look into the real challenges facing oil markets. The better you understand how market dynamics works, the more accurately you can understand what’s coming up in fuel prices – and ultimately position yourself to buy most effectively for your business.