Oil surges and drags diesel along
US diesel prices topped $6 per gallon on Friday for the first time in history, as fuel supply disruptions caused by wars in Ukraine and Iran drive up transportation costs across the entire economy. Truck drivers and farmers are paying roughly 63% more to fill up their trucks and tractors compared to the same period last year, according to AAA data. The national average price now stands at $6.0556 per gallon. In California, the largest agricultural state in the US, prices are even higher at $7.9827 per gallon.
Oil surges and drags diesel along
Fuel prices are rising as crude oil prices have surged following a sharp escalation in conflicts between the US and Iran this month. American crude futures surpassed $100 per barrel on Thursday for the first time since May. The contract has gained approximately 20% in September. Diesel represents the true lifeblood of the economy, even though consumers tend to pay closer attention to gasoline prices, said Bob McNally, president of Rapidan Energy, in an interview on CNBC's The Exchange on Tuesday. Higher diesel prices are passed on to consumers through the prices they pay for food, consumer goods, and energy. Diesel fuel powers the trucks, trains, and ships that transport goods to market. It also powers the machinery that farmers use to plant and harvest food. In some cases, it is even used for home heating and electricity generation. "It is the most insidious, most expensive, and most impactful fuel," McNally stated. "As we climb even higher, it becomes a real concern."
A "silent killer" for the American economy
Diesel prices at these levels will act as a "silent killer" for the economy, said Patrick De Haan, head of petroleum analysis at GasBuddy, during an interview on CNBC's Power Lunch on Tuesday. Gasoline prices, meanwhile, have never been this high so late in the year, according to De Haan. Pump prices reached a record level for Labor Day at $4.15 per gallon earlier this week. Americans are spending roughly $700 million more per day on gasoline and diesel compared to a year ago, according to the analyst. "There is a shock for consumers when they see the prices," De Haan said.
Wars in Ukraine and Iran dry up global supply
Fuel costs are increasing as wars in Iran and Ukraine have disrupted global fuel supplies. Kyiv has struck Russian refineries, forcing Moscow to ban diesel exports. Iran and its allies, the Houthi fighters in Yemen, have also struck refineries belonging to US allies in the Persian Gulf. At the same time, fuel exports through the Strait of Hormuz have been restricted due to Iranian attacks against oil tankers. The wars in Eastern Europe and the Middle East have taken refineries with a total capacity of approximately 5 million barrels per day offline, stated Gary Simmons, Chief Operating Officer of Valero, during the American refining company's earnings call on July 30.
The world loses nearly 8% of diesel supply
The world has lost nearly 8% of its diesel supply, while there is minimal spare refining capacity available to fill the deficit, said Andy Lipow, president of Lipow Oil Associates, in a note on Wednesday. Rising diesel prices represent a "huge challenge" for the Trump administration, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in an interview on CNBC's Power Lunch on September 4. "American oil refineries are operating at 98% utilization rates — there simply is no spare capacity available," Croft said.
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