An extended surge in diesel prices is challenging Wall Street bets that inflation is easing.
A global shortfall of the fuel—the workhorse for much of the world economy—is straining industries from trucking to farming and adding to the pressure consumers face from higher energy prices. Europe, dependent on imports of Russian diesel that are expected to slump because of sanctions, is particularly vulnerable.
Motorists and businesses are feeling the pinch. In the U.S., national average retail diesel prices rose to an all-time high for a 14th straight day Thursday, reaching $5.557 a gallon, according to AAA. They have shot up 56% in 2022, outstripping gains in the benchmark price for crude oil. Retail unleaded gasoline prices have risen 34% to $4.4177 a gallon.
Diesel is used in the U.S. mostly in trucks, which means higher prices add to shipping and delivery costs. Inventories of distillates, which also include heating oil, fell recently to a 17-year low in the midst of lower refining activity and higher demand domestically and abroad, according to the U.S. Energy Information Administration. Supplies are particularly tight along the East Coast, where inventories have dropped to their lowest level since at least 1990.
In Europe, where diesel cars account for a bigger chunk of the auto fleet, prices in the wholesale market have leapt 88% over the past year. The availability of fuel is likely to worsen as sanctions on Russia tighten, exposing a flaw in the region’s energy setup.
Governments in recent decades pushed drivers to adopt diesel cars but didn’t upgrade the refinery industry so it could produce the fuel in greater quantities. That meant buying more diesel from Russia, the energy superstore on Europe’s doorstep.
Helge Ippendorf, chief executive of Via Logistik GmbH, a company based near the German city of Cologne that trucks artwork, road-safety materials and other wares, is shelling out 4,000 euros, the equivalent of $4,150, a week for diesel, 80% more than a year ago. He can’t remember such a jump in fuel prices since the 1970s oil shocks.
“No other impact in my whole career—and I started my own company in 1981—was as massive as the situation at the moment,” he said.
Rising energy prices are a major factor contributing to the persistence of inflation, which has sparked steep declines in the stock and bond markets. The S&P 500 fell 1.6% Wednesdayafter a gauge of U.S. consumer prices came in higher than Wall Street expected.
The winners are petroleum refiners, which convert crude into usable fuels and are enjoying a rare stretch of profitability. Shares of
, two of the biggest U.S. refining companies, have gained 60% and 45% this year, making them the second- and ninth-best performers on the S&P 500, respectively.
Global stockpiles of refined oil products including diesel have fallen to precariously low levels, the International Energy Agency said Thursday. Shortages are starting to crimp mobility in several African countries, Yemen and Sri Lanka. Jet fuel has run low in Mexico, according to the intergovernmental organization.
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The diesel crunch is another result of the stop-start trajectory of Western economies since the start of the pandemic. When the U.S. and Europe went into hibernation in 2020, energy demand tanked. Several struggling refineries, including Gunvor Group’s facility in Belgium and
Those closures are limiting the ability of refiners to crank up production now that demand is thawing as cars return to the road and planes to the sky. The problem is more acute in diesel than in gasoline because diesel and jet fuel are produced from the same slice of the crude barrel. When refiners started to spit out jet fuel to meet demand from airlines last year, diesel production sputtered and supplies fell.
The war in Ukraine is making matters worse. Daily Russian exports of oil products have fallen by 400,000 barrels this year because some companies are shunning Russian energy, according to analysts at Bank of America.
China has excess refining capacity. But lower export quotas for oil products have cut Chinese exports of gasoline, jet fuel and diesel by 400,000 barrels a day since 2020, the analysts added.
Profit margins for refiners in the West have ballooned as traders try to encourage the industry to ratchet up production. Executives on recent earnings calls said they were running at full speed and, in some cases, seeking to maximize output by postponing maintenance.
“I don’t see any significant slack in the system in the U.S.,” said Gary Cunningham, director at Tradition Energy.
In Europe, imports of diesel from Russia are expected to drop starting May 15, when sanctions that crimp the business that trading companies can do with the state-aligned
take effect. A full embargo on Russian oil imports into the European Union is subject to tough negotiations.
Eastern Germany is at risk, said Koen Wessels, senior associate for oil products at Energy Aspects. The region’s biggest refinery, Schwedt, is majority-owned by Rosneft and geared up to run on Russian oil imported through the Druzhba pipeline. Output is due to fall as the facility stops using Russian crude. Though some crude from non-Russian producers is expected to arrive via the Polish port of Gdansk, there is no pipeline that can reliably supply the refinery with crude from western Germany if a shortage emerges.
Mr. Wessels said Europe could be drawn into bidding wars with other economies to import diesel from such producers as India and Saudi Arabia.
One industry feeling the heat is agriculture, which relies on diesel to fuel tractors and dry crops, and is also facing a historic rise in fertilizer prices. Jack Watts, an official at the U.K.’s National Farmers’ Union, said some suppliers had told farms that they could order diesel but would be quoted a price only once the fuel was delivered.
“In a lot of cases, farmers have ordered diesel but have no idea what they are going to be paying for it,” he said. “We’ve never seen such concern about pricing and availability.”