Prices for gas and diesel, over $ 6.00 per gallon, are shown at a gas station in Los Angeles, March 2, 2022.
Frederick J. Brown | AFP | Getty Images
Diesel prices are rising, contributing to inflationary winds due to the vital role of fuel in the US and global economies. Tankers, trains, trucks and planes run on diesel fuel. The fuel is also used in industries including agriculture, manufacturing, metals and mining.
“Diesel is the fuel that feeds the economy,” said Patrick De Haan, head of oil analysis at GasBuddy. Higher prices “will certainly become more expensive goods,” he said, as these higher fuel costs will be passed on to consumers. “Especially at the grocery store, hardware store, wherever you shop.”
In other words, the impact will be felt throughout the economy.
Rising diesel
The jump in prices comes after growing demand as the world’s economies return to business. This in turn has brought stocks to historically low levels. Products such as diesel, fuel oil and jet fuel are known as “middle distillates” because they are produced from the mid-boiling range when the oil is converted into products.
Distillate stocks in the United States are now at their lowest level in more than a decade. This move is even more extreme on the East Coast, where stocks are lowest since 1996. Diesel and jet fuel at New York Harbor are now trading well above $ 200 a barrel, according to UBS.
Moving Europe away from dependence on Russian energy is accelerating the rapid rise in prices. The unit currently imports about 700,000 barrels of diesel a day from Russia, according to Stephen Brennock of brokerage PVM.
“[T]limited global supplies will be exacerbated by the EU’s proposal to ban Russian oil imports, “he said.” If approved, the ban will have a huge impact on food markets and especially diesel …. Europe can run out of diesel. “
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Rystad, an energy consultancy, reiterated that the loss of Russian refined products would make Europe’s diesel shortage “more acute”.
Refineries cannot simply increase production to meet growing demand, and utilization rates are already above 90%. In the United States, refining capacity has declined in recent years. The largest refinery complex on the East Coast – Philadelphia Energy Solutions – was closed after a fire in June 2019.
Several refineries are now being reconfigured to produce biofuel, which also has reduced capacity.
Some refineries are also undergoing routine maintenance checks that were overdue after the pandemic. These equipment is usually exhausted – 24 hours a day, seven days a week – and therefore at some point the machine must be checked.
The East Coast relies heavily on other parts of the country for refined products, De Haan said. Europe is now competing for these same fuels while turning away from Russia.
“Non-moored” prices
A common saying in commodity markets is “the cure for high prices is high prices”. But this time it may not be so. According to UBS, demand for distillate is usually less elastic than gasoline prices.
In other words, while high pump prices can deter consumers, if a business has to get goods from point A to point B, it will pay those higher prices.
Tom Klose, head of global energy research at OPIS, said that in the past, a barrel of diesel was usually sold for $ 10 above the price of crude oil. Today, this differential – known as the crack spread – has grown to a record high of over $ 70.
“It became untied, crazy, a little stagnant. These are prices we are not used to seeing,” he said, adding that there are big differences in US prices.
Klose said New York Harbor’s diesel is now trading at about $ 5 a gallon, while the port’s jet fuel prices, which typically reflect diesel prices, are about $ 6.72. This equates to approximately $ 282 per barrel.
“These are numbers that are not just outside the charts. They are outside the walls, outside the building and maybe outside the solar system,” he said.
Retail diesel prices are also rising. On Friday, the national average per gallon reached a record $ 5.51, according to the AAA, after reaching a new high every day for the past week.
Higher diesel prices lead to higher profit margins for refineries, which are now encouraged to do as much as possible. At some point, this could lead to tensions in the petrol market, raising the high prices that consumers are already seeing at the pump.
Meanwhile, consumers can expect commodity prices to continue to rise.
“This will be a double blow to consumers in the coming weeks and months as these diesel prices converge to commodity prices – another inflation that will hit consumers,” said De Haan of GasBuddy, adding that the full impact of the recent price jump is not yet felt.
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