Record diesel prices, supply shortages may be the next blow to the US economy

Even if you’ve never bought a gallon of diesel in your life, as most American drivers do, high diesel prices can hit your wallet — and the American economy — in multiple ways.

“The number one way that higher diesel prices affect the economy is that they make shipping expensive,” said Tom Cluza, global head of energy analysis at OPIS, which collects gas price data for AAA. “The second method is potential disruptions in the supply chain. None of it is good.”

Phil Verliger, a leading energy economist, fears a shortfall in supply will push the average price of diesel in the United States to $10 a gallon by the end of summer, up from the current record average price of $5.56, according to the AAA. He said rising diesel prices could stall the US economy.

“Until the invasion of Ukraine, we didn’t see anything like this,” Verleger said. “The market is completely distorted. We will likely see much slower economic activity as a result.”

Almost everything you buy at some point is shipped on a diesel truck. Trucking companies charge their customers surcharges for fuel when prices go up, which raises the cost on everything they provide. entire Supply chains can be disrupted If the trucks don’t have the fuel they need to run.
It is also essential for use in agriculture. diesel high Prices can force farmers to reduce planting or fertilize, reducing Previously tight food supply and driving above food prices In excess of the added cost of transportation.

“A lot of truck drivers won’t be able to work,” Verleger said. “If you’re a farmer, you might have to leave some acres fallow, or not fertilize as much. Macroeconomists don’t understand this. It will come back and haunt us all.”

The current national average gallon of diesel has jumped more than 10% in the past month, which is 77% higher than it was a year ago. Prices in the Northeast are more than $6 a gallon, and in six states in New England and New York, prices have more than doubled over the past year.

In comparison, the national average price of ordinary Gasoline, also at a record level$4.42 a gallon, an increase of just under 50% in the same period.

Why is diesel supply low and prices so high

The reasons for the shortage are varied, but sanctions and the cut in the supply of Russian oil due to its invasion of Ukraine played a major role.

Although very little Crude oil or Russian diesel They came to the American market before the war, Europe depends on it. About half of the cars in Europe run on diesel, as well as trucks and freight trains. (Less than 5% of US passenger cars are diesel.)

The average price of diesel has risen to between $7.27 and $8.95 a gallon in Western European countries, which isn’t much cheaper in most Eastern European countries.

These higher prices led to a massive increase in diesel exports to Europe from US and Canadian refineries that usually supply US truck and truck stations. US diesel exports to Europe since the beginning of April are up 36% compared to the same period a year ago, according to the US Energy Information Administration.

Oil refineries make as much expensive diesel and jet fuel as possible from the oil they own, driving up gasoline prices. But there is less US and Canadian refining capacity today than there was before the pandemic, with some refineries shutting down permanently, and others diverting to refining renewable fuels instead of crude.

Why US gas prices have risen to a record high, and why they will remain high for a long time

Diesel futures prices are less than $1 per gallon than the current spot price, which may provide hope that prices may head lower in the coming months. But this also discouraged diesel retailers and trucking companies from buying too much in the spot market. Verleger said the current price of diesel means some companies can’t buy as much supply as in the past due to restrictions on their credit lines.

All these factors mean that diesel supply is very scarce, especially in the Northeast where EIA . said Inventories are at a record low based on data going back to 1990. Supplies are down 36% since the week of February 25, when Russia invaded Ukraine, and about 50% less than they were a year ago.

Truck stop operators say they strive to provide the diesel their customers need.

Although diesel stocks are adequate in most parts of the country, said Brad Jenkins, senior vice president of supply and distribution for Pilot, which operates more than 750 locations in the United States and Canada. There are “very low” stocks in the eastern states. In addition, he said, refinery issues are causing tight markets in St. Louis and Indianapolis, and that Virginia and Georgia are also seeing “limited availability.”

Love’s Travel Stops, a chain of more than 500 truck stops nationwide, said it had “minimum outages” for diesel during low-traffic hours at its East Coast locations and that it “currently does not plan to restrict diesel purchases.”

Kloza said the diesel shortage so far is reflected in higher prices, not widespread service outages or restrictions on purchases. “But stay connected,” he warned.