A prolonged rise in diesel prices is challenging Wall Street’s bets that inflation is easing.
Global fuel shortages – the source of energy for much of the world’s economy – are straining industries from trucking to agriculture and add to the pressure consumers face from higher energy prices. Europe, reliant on Russian diesel imports expected to fall because of sanctions, is particularly vulnerable.
Drivers and businesses feeling oppressed. In the US, the national average retail diesel price rose to an all-time high for the 15th consecutive day on Friday, reaching $5.56 a gallon, according to AAA. They are up 56% in 2022, outpacing the rise in crude oil prices. Retail unleaded gasoline prices rose 35% to a national average of $4.43 per gallon.
In the US, most use diesel in trucks, which means higher prices add up shipping and delivery costs. Distillate inventories, including heating oil, recently fell to a 17-year low amid falling refining activity and higher demand at home and abroad, according to the U.S. Energy Information Administration. water, according to the US Energy Information Administration. Special Supplies closely along the east coastwhere inventories have fallen to their lowest levels since 1990.
In Europe, where cars run on diesel engines accounting for a larger share of the car fleet, prices on the wholesale market have increased by 88% over the past year. Fuel availability could worsen as sanctions on Russia are tightened, exposing holes in the region’s energy setup.
Governments in recent decades have pushed drivers to use diesel cars but failed to upgrade the refining industry so that it can produce fuel in larger quantities. That means buying more diesel from Russia, the energy superstore on Europe’s doorstep.
Helge Ippendorf, chief executive officer of Via Logistik GmbH, a company based near the German city of Cologne that ships artwork, road safety materials and other items, is shooting out 4,000 euros, equivalent $4,150, a week for diesel, 80% more than a year ago. He can’t remember the spike in fuel prices since the oil shocks of the 1970s.
“No other impact in my entire career — and I founded my own company in 1981 — has been as big as the situation right now,” he said.
Rising energy prices were a major contributor to the persistence of inflation, sending stock and bond markets crashing. The S&P 500 fell 1.6% on Wednesday after evaluation US consumer prices higher than Wall Street expected.
The winners are refiners, which convert crude oil into usable fuel and are enjoying rare margins. Shares of
two of the largest U.S. refiners, are up 66 percent and 50 percent this year, making them the second and tenth best performers on the S&P 500, respectively.
The International Energy Agency says global stocks of refined oil products including diesel have fallen to a “significantly low” level. Shortages are starting to undermine mobility in several African countries, Yemen and Sri Lanka. According to the intergovernmental organization, jet fuel has run out in Mexico.
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The diesel crisis is another result of the shutdown trajectory of Western economies since the start of the pandemic. As the United States and Europe go into hibernation in 2020, energy demand has increased. Several refineries are struggling, including the Gunvor Group facility in Belgium and
in Convent, La., closed.
That closure is limiting refineries’ ability to ramp up production as demand is dwindling as cars return to the roads and planes take to the skies. The problem is more serious for diesel engines than gasoline because diesel and jet fuel produced from the same slice of raw barrel. When refineries started producing jet fuel to meet demand from airlines last year, diesel output plummeted and supplies fell.
The war in Ukraine is making the problem worse. Russia’s daily exports of oil products have fallen by 400,000 barrels this year due to a number of companies Russian energy alienatedAccording to analysts at Bank of America.
China has excess refining capacity. However, lower export quotas for oil products have caused China’s exports of gasoline, jet fuel and diesel to fall by 400,000 bpd since 2020, the analysts added.
The profit margins of refineries in the West have increased as traders try to incentivize the industry to ramp up production. Executives on recent earnings calls said they were running at full speed and, in some cases, they were looking to maximize output by postponing maintenance.
“I have not noticed any significant system delays in the US,” said Gary Cunningham, director at Tradition Energy.
In Europe, diesel imports from Russia are expected to fall starting May 15, when sanctions cripple the business trading companies can do with the affiliated state.
effective. An outright embargo on Russian oil imports into the European Union is the subject of difficult negotiations.
Koen Wessels, senior associate for oil products at Energy Aspects, said Eastern Germany is at risk. The region’s largest refinery, Schwedt, is largely owned by Rosneft and is designed to run on Russian oil imported via the Druzhba pipeline. Output is due to decrease as the facility stops using Russian crude oil. Although some crude oil from non-Russian producers is expected to arrive at the Polish port of Gdansk, no pipeline can reliably supply the refinery from western Russia. Germany if shortages appear.
Mr Wessels said Europe could be drawn into a bidding war with other economies to import diesel from producers such as India and Saudi Arabia.
One industry that is feeling the heat is agriculture, which relies on diesel to fuel tractors and dry crops, and is also facing historic increases in fertilizer prices. Jack Watts, an official at the UK’s National Farmers’ Union, said some suppliers have told farms they can order diesel but will be quoted a price only after the fuel is cleared. deliver.
“In a lot of cases, farmers have ordered diesel but don’t know what they will have to pay for it,” he said. “We’ve never seen such concern in terms of price and availability.”
Write to Joe Wallace at [email protected]
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