Even if you’ve never bought a gallon of diesel in your life, as is the case for most American drivers, high diesel prices can hurt your wallet — and the U.S. economy — in multiple ways.
“The first way high diesel prices affect the economy is that it is expensive to ship,” said Tom Kloza, chief of energy analysis for the OPIS, which collects gas price data for AAA. “The second way is possible disruptions in the supply chain. None of them are good.”
Leading energy economist Phil Verleger worries that tight supply could push the average US diesel price to $10 a gallon by the end of the summer, up from the current record average price of $5.56, according to AAA. Those high diesel prices could put a brake on the US economy, he said.
“Until the invasion of Ukraine, we have never seen anything like it,” Verleger said. “The market is totally distorted. And as a result, we’re likely to see much slower economic activity.”
“Many truck drivers simply won’t be able to operate,” says Verleger. “If you’re a farmer, you might have to leave a few acres fallow or you won’t fertilize as much. The macroeconomists don’t understand this. It will come back and haunt us all.”
The current national average for a liter of diesel has increased by more than 10% in the past month and is 77% higher than a year ago. Prices in the Northeast are all over $6 a gallon, and prices have more than doubled in the past year in half a dozen states in New England and New York.
Why diesel inventories are low and prices skyrocketing?
The reasons for the shortages are varied, but sanctions and the reduced supply of Russian oil due to the invasion of Ukraine have played a major role.
The average price of diesel has risen between $7.27 and $8.95 per gallon in Western European countries, and it’s not much cheaper in most of Eastern Europe.
Those high prices have led to a huge surge in diesel exports to Europe from US and Canadian refineries that would normally supply US truck stops and transportation companies. According to the US Energy Information Administration, US diesel exports to Europe have increased by 36% since early April compared to the same period a year ago.
Oil refineries make as much diesel and similarly expensive jet fuel as possible with the oil they have, pushing up the price of gasoline. But there is less refining capacity in the US and Canada today than before the pandemic, as some refineries are closed permanently and others are being converted to refine renewable fuels instead of crude oil.
Diesel futures prices are more than $1 a gallon below the current spot price, which could provide hope that prices could move lower in the coming months. But that has also discouraged diesel retailers and trucking companies from buying too much on the spot market. And Verleger said the current price of diesel means some companies can’t afford to buy as much supply as in the past because of limits on their lines of credit.
All these factors mean that the supply of diesel is very tight, especially in the Northeast, where the EIA said: stocks are at a record low based on data dating back to 1990. Stocks are down 36% since the week of Feb. 25, when Russia invaded Ukraine, and are nearly 50% lower than a year ago.
Truck stop operators say they are doing their best to provide the diesel their customers need.
Brad Jenkins, senior vice president of supply and distribution for Pilot Company, which operates more than 750 locations in the US and Canada, said that while diesel supplies are adequate in much of the country, there are “extremely low” stocks in eastern states. In addition, he said refinery issues are tightening markets in St. Louis and Indianapolis, and that Virginia and Georgia are also experiencing “limited availability.”
Love’s Travel Stops, a chain of more than 500 truck stops across the country, said it has had “minimal outages” of diesel during low traffic at its East Coast locations and that it currently has “no plans to continue purchasing diesel.” to limit”.
The diesel shortage so far manifests itself in the form of skyrocketing prices, not widespread outages or caps on purchases, Kloza said. “But stay tuned,” he warned.