Supply Alert – East Coast – Code Red

The East Coast is experiencing a tightening of diesel fuel supplies due to market forces, putting pressure on last-mile fuel deliveries. As a result, fuel prices are rising along the East Coast, and supply is taking longer to secure in some markets.

In a recent FUELSNews article, Mansfield reviewed the effects of volatility on the last-mile fuel supply chain. Volatility is continuing to present supply challenges across the US, most acutely along the East Coast. Due to the current unique pricing structure, the East Coast has experienced a rapid reduction in diesel inventories. Over the past few months, diesel stocks have nearly halved, making it harder to source and deliver fuel in some areas.

The cause of the decline is a market pricing structure called backwardation, another topic we’ve covered before in FUELSNews. Backwardation simply means that future prices are lower than current prices. When markets are backwardated, suppliers are incentivized to sell off their inventory since they will receive a higher price now than in the future. Recently, the spread between current and future prices has been as much as $1/gal, meaning suppliers would lose $1/gal if they hold inventory for 30 days.

As suppliers of all sizes have reacted to market pressure, available fuel supply on the East Coast has dwindled from 40 million barrels to just 22 million barrels. The outages have not been evenly spread across all markets; southeastern states including Georgia, North Carolina, and Virginia have experienced more challenges than other regions.

Mansfield is moving to Code Red for the East Coast, asking that customers provide at least 48-hour notice for new deliveries. In areas where supply is particularly tight, additional notice for deliveries may be requested. Speak with your Mansfield customer service representative for more information about delays in your local area.