White House Eyes Expanding Northeast Diesel Reserve on Supply Crunch

(Bloomberg) -- The Biden administration is considering ways to expand a little-used emergency fuel reserve in New England as the East Coast grapples with shortages of both gasoline and diesel, according to people familiar with the matter.

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Officials are concerned the 1 million-barrel reserve won’t be enough to counter a severe disruption this winter and are considering numerous options to bolster supplies, according to the people, who weren’t authorized to discuss internal White House deliberations on the record.

One option under discussion is asking Congress to lift a statutory cap on how much oil can be held in the reserve. Also on the table: requiring private companies to hold minimum inventory levels, which also would require congressional approval, and export curbs that could be imposed through executive powers. No decisions have been made, the people said. The White House has multiple tools for addressing shortages, a senior administration official said.

With just two weeks until the midterm elections, the US is facing the prospect of higher fuel prices amid an escalating supply crunch. Gasoline inventories are at an 8-year seasonal low while supplies of diesel -- used for heating and trucking -- remain at the lowest level ever for this time of year. On the East Coast, the situation is getting more dire with infrastructure constraints limiting fuel shipments and prompting some suppliers to start rationing fuel.

That’s alarmed the Biden administration, which contends that private industry hasn’t adequately responded to its requests to ramp up supplies of gasoline and diesel in the Northeast. But given market dynamics and infrastructure constraints -- including the century-old Jones Act that can raise the cost of shipping to US ports -- many suppliers can make more money sending fuel overseas than shipping it to the East Coast. US petroleum exports surged to a new record last week.

The Biden administration has already started laying the groundwork for storing more emergency fuel inventories, finalizing new rules meant to incentivize suppliers to sell diesel and and gasoline to the government.

--With assistance from Chunzi Xu.

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