Tuesday, March 13, 2012

Double Whammy

Regional refining crunch exacerbates global rise in fuel costs.

Fuel prices are raising their ugly head. The national average of diesel prices continued to surge last week, crossing the psychologically important $4/gallon threshold, reaching the highest prices since May of last year and the highest ever for February.

With prices rising rapidly across the country, the Northeast is being hit with a double whammy, due to the shutdown of three refineries that serve the region, and the potential shutdown of a fourth. Economists estimate the closings could boost gas prices in New England by up to 15 cents per gallon – over and above any spikes from continued unrest in the Mideast, particularly the looming threat of a confrontation with Iran over its nuclear ambitions.

Sunoco Inc. has said it will close its Philadelphia refinery, which produces 330,000 barrels per day, if it does not find a buyer. Together with the facilities already closed, this would amount to a loss of 50 percent of the total refining capacity in the Northeast, according to the Federal U.S. Energy Information Administration. Refineries in the Northeast have typically supplied roughly 60 percent of the ultra-low-sulphur-diesel fuel for the region’s trucking fleets, with the balance coming from Gulf Coast and overseas refineries.

The one-two punch of global fuel increases and cuts in regional capacity can lead to a second double whammy. The spike in fuel prices not only drives up costs, it also concurrently depresses overall business activity, leading to a drag on both the top line and the bottom line.

While you can’t escape higher fuel prices, there is something you can do. The more efficient your supply chain, the more you insulate yourself from their effects.

Kirk Shearer
800-989-0054 x103

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