Ukraine-Russia War: Live News and Updates
Farmers spend more to operate their tractors and combines. Shipping and trucking companies are passing the higher costs on to retailers, who are beginning to pass them on to buyers. And local governments are paying hundreds of thousands more to fill school buses. Construction costs may also increase soon.
The source is the sudden spike in the price of diesel, which is quietly undermining the US and global economies by driving up inflation and putting pressure on supply chains from manufacturing to retail. This is one more cost of the war in Ukraine. Russia is a major exporter of diesel and crude oil from which diesel is made in refineries.
Car owners in the United States were shocked by gasoline prices of over $4 a gallon, but there was an even bigger increase in the price of diesel, which plays a vital role in the economy. world because it powers so many different types of vehicles and equipment. A gallon of diesel sells for an average of $5.19 in the United States, according to government figures, up from $3.61 in January. In Germany, the retail price climbed to 2.15 euros per litre, or $9.10 per gallon, from €1.66 at the end of February, according to ADAC, the national version of the AAA.
Petrol stations in Argentina have started rationing diesel, jeopardizing one of the world’s major agricultural economies, and energy analysts warn the same could soon happen in Europe, where some companies say they are spending twice as much diesel as a year ago.
“Not only is that a historic level, but it’s been growing at a historic rate,” said Mac Pinkerton, president of North American ground transportation for CH Robinson, which provides supply chain services to trucking companies and to other customers. “We’ve never experienced anything like this before.”
The sharp increase is putting immense pressure on trucking companies, especially small businesses that are already suffering from driver shortages and scarce spare parts. Many can only pass on increased fuel costs to their customers after a few weeks or months.
Eventually, consumers will feel the effect of higher prices for all kinds of goods. Although difficult to quantify, inflation will be most visible for big-ticket items like automobiles or appliances, economists say.
“Really, everything we buy online or in a store is on a truck at some point,” said Bob Costello, chief economist for the American Trucking Associations.
Manufacturers are also heavy users of diesel, driving up prices for factory products. The price of food will increase because agricultural equipment generally runs on diesel.
“It’s not just the fuel that we put in pickup trucks, tractors, combines,” said Chris Edgington, an Iowa corn farmer. “It’s a cost of transporting these goods to the farm, it’s a cost of transporting them.”
At the start of the pandemic, diesel prices fell sharply as the global economy slowed, factories closed and stores closed. But from the beginning of 2021, there was a clear rebound with the recovery of road and rail traffic. Prices, which have risen fairly steadily over the past year, gained momentum in January when Russia massed troops near Ukraine and then invaded. Low fuel inventories, particularly in Europe, added to price pressures.
“Diesel is the most sensitive and cyclical product in the oil industry,” said Hendrik Mahlkow, a researcher at the Kiel Institute for World Economy in Germany, who has studied commodity prices. “Rising prices will ripple through the entire value chain.”
Refineries, which turn crude oil into fuels usable in cars and trucks, have been trying to catch up on both sides of the Atlantic in recent months. But they weren’t able to make more diesel, gasoline and jet fuel fast enough. This is partly because refineries have closed in Europe and North America in recent years and more of the world’s fuels are being refined in Asia and the Middle East.
Since January 2019, refining capacity has shrunk 5% in the United States and 6% in Europe, according to Turner, Mason & Company, a Dallas consulting firm.
Europe is particularly vulnerable because it depends on Russia for 10% of its diesel. Europe’s own diesel production also depends on Russia, which is a big supplier of crude oil to the continent. Some analysts say Europe may have to start rationing diesel as early as next month unless the shortage eases.
Diesel prices and Germany’s reliance on Russian energy were among factors that prompted Germany’s Council of Economic Experts on Wednesday to more than halve its 2022 growth forecast to 1 .8%.
Russian diesel has been flocking to Europe since last month’s invasion, but traders, banks, insurance companies and shippers are increasingly turning away from the country’s diesel, oil and other exports.
Several major European oil companies have announced that they are leaving Russia. TotalEnergies, the French oil giant, said this month that it would stop buying Russian diesel and oil by the end of the year.
The oil and diesel market is global and companies can usually find another source if their main supplier cannot deliver. But no oil company or country can quickly compensate for the loss of Russian energy.
Saudi Arabia, for example, has not increased its diesel exports because one of its largest refineries is undergoing maintenance. The kingdom and its OPEC Plus allies have also refused to increase crude oil production because they are happy that oil prices remain high. Russia belongs to the group and exerts a significant influence on its colleagues.
Christine Hemmel is the director of a trucking company in Ober-Ramstadt, Germany, which has been in her family for four generations. His family’s business faces nearly every challenge midsize carriers have faced since the pandemic began.
The prices of tires and spare parts have often doubled. The price of wood used for freight pallets has skyrocketed. Experienced drivers are hard to find. AdBlue, a fluid trucks need to comply with emissions regulations, costs four times as much as before and is sometimes unavailable, she said.
Ms Hemmel’s company Spedition Schanz, which has 35 trucks, is paying twice as much for diesel as it did a year ago, she said. This translates to additional expenses of €252,000, or $280,000, every three months. Within the framework of contracts with customers, the company can pass on the increase, but with a period of three months.
“It’s crazy how prices are exploding,” Ms Hemmel said on Tuesday. She expected them to stabilize, she said, but “there’s no end in sight.”
Eventually, she says, “we’ll pass it on to our customers, and they’ll pass it on to consumers.”
European energy companies are scrambling to find alternative sources of crude supplies as they stop buying Russian oil. One of the challenges is that Persian Gulf oil tends to contain more sulfur. Some European refineries cannot process this oil, and others have to make costly modifications to manage it.
Adding to problems at European refineries, the price of natural gas has risen sharply, driving up electricity costs. Refineries also use natural gas to make hydrogen, which, in turn, is used to remove sulfur from diesel to reduce air pollution. The German government on Wednesday began preparing to ration gas in the event of an acute shortage.
“It’s a market for the price of diesel,” said Richard Joswick, head of global oil analysis for S&P Global Platts, an energy research firm. “The increase in Europe is driving up the price of diesel everywhere.”
Mr Joswick warned that as refiners rush to produce more diesel, they will inevitably produce less gasoline and other products, which could drive up energy prices across the board.
US refineries have been exporting more diesel to Europe from New York and the Gulf Coast in recent months. This is unusual, as these refineries typically sell most of their products to the domestic market during the winter, when diesel demand tends to be higher than in the summer.
“The Europeans are producing as much as they can, but they’re still short,” said Debnil Chowdhury, vice president and head of Americas refining at IHS Markit, a research firm. “And so the United States needs to fill that gap.”
US diesel exports to Europe have, in turn, helped push up prices in the domestic market by reducing supply. This could become a bigger problem. U.S. diesel inventories have fallen over the past year and a half and are at their lowest level in eight years, according to the Energy Department.
“There is a certain terror” in the diesel market right now, said Linda Salinas, vice president of operations at Texmark Chemicals, a Texas-based company that converts undistilled imported diesel — made from cooking oil. and waste – into renewable jet fuel. “How many times do we have a great power like Russia invading another country and having a global impact like this? All fuel flows are connected.
Ana Swanson contributed report.