US diesel prices hit record levels as war disrupts oil supplies and tightens fuel markets
The average price of diesel in the United States has crossed $6 a gallon for the first time, marking a sharp increase in fuel costs as the war involving the US, Israel and Iran and disruptions at Russian refineries squeeze global supplies.
GasBuddy, which tracks fuel prices in real time, said the US national average had surpassed $6 a gallon on Friday. AAA put the average at $5.98 a gallon on the same day, up 61 per cent from $3.71 a year earlier.
The increase is significant because diesel is widely used to power trucks, trains, ships, construction equipment and farm machinery. Higher diesel costs can therefore raise the cost of moving goods and operating businesses, potentially feeding into prices paid by consumers.
Benchmark Brent crude also climbed above $100 a barrel on Friday as the conflict between the US and Iran intensified. Brent settled at $107.63 a barrel, while US West Texas Intermediate crude settled at $102.48.
Why diesel prices are rising
Crude oil is the biggest driver of fuel prices, but the recent rise in diesel prices is also being amplified by a shortage of refined fuel.
The conflict involving the US, Israel and Iran has disrupted oil shipments through the Strait of Hormuz, a major global energy route. The waterway normally carries roughly one-fifth of global oil supplies.
More from BusinessThe diesel market is facing additional pressure from disruptions to Russian refining capacity following repeated Ukrainian drone attacks on the country’s energy infrastructure. Russia has also restricted diesel exports, reducing the amount of fuel available to international markets.
China’s restrictions on fuel exports have added to the squeeze.
Diesel prices have consequently risen faster than gasoline prices. AAA data put the average US gasoline price at about $4.28 a gallon on September 10.
US diesel inventories remain below average
The price surge comes even as US refiners are operating at high utilisation rates.
US diesel inventories stood at 106.3 million barrels, about 13 per cent below the five-year average, according to the US Energy Information Administration. Stocks increased last week as refiners raised production to take advantage of strong refining margins.
The US diesel crack spread, a measure of the difference between crude oil prices and refined diesel prices, reached a record $112.17 a barrel on Thursday, according to LSEG data.
Distillate inventories, which include diesel and heating oil, are also near multi-decade lows for this time of year.
Higher diesel costs could reach consumers
The impact of higher diesel prices has so far been partly absorbed by businesses, but that could change if prices remain elevated.
Businesses often have supply contracts and some ability to absorb higher fuel costs in their margins. But as those contracts are renewed and fuel surcharges increase, companies could begin passing a larger share of the additional expense to customers.
The effect could be particularly visible in industries that rely heavily on transportation.
Grocery prices are one potential channel. Perishable products that travel long distances, including fresh produce and seafood, are more exposed to higher transportation costs. Locally sourced and non-perishable goods are generally less dependent on long-distance diesel-powered transportation.
Furniture and other bulky goods could also become more expensive because of higher shipping and delivery costs. Vehicle prices could face additional pressure through higher transportation and destination charges.
Diesel surge already affecting producer prices
There are signs that higher diesel costs are already reaching businesses.
The US Labor Department said that diesel prices, which rose 24.1 per cent in August, accounted for more than one-third of the increase in goods prices at the producer level last month.
The producer price index measures the prices businesses receive for goods and services and is often viewed as an indicator of cost pressures before they reach consumers.
That makes the diesel surge important beyond the fuel market itself. If higher transportation and operating costs persist, businesses could eventually raise prices for goods and services to protect profit margins.
(With inputs from agencies.)
