Record High Diesel Prices Will Ripple Across The Economy

  • Diesel prices have hit record highs due to very tight domestic inventories and a global supply shortage.
  • A combination of spiking demand as the world recovers from Covid and falling supply due to Russia’s invasion of Ukraine has hit diesel markets hard.
  • Not only are diesel prices at record highs, but they are also at their largest differential to gasoline in history.

The highest inflation in the U.S. in four decades is set to persist and even increase in the coming months as the price of diesel is at record highs amid very tight domestic inventories and a global shortage of supply.   Diesel is used in every part of the industrial activity and supply chain, from goods transportation to manufacturing and agriculture; it fuels America’s economy. Diesel prices have soared to record highs in recent months, adding further upward pressure on U.S. inflation figures. The exceptionally tight diesel market at home and abroad is unlikely to ease any time soon, considering the post-COVID demand from industry and for leisure and travel, as well as the reduced supply of diesel, other fuels, and crude oil from Russia following the invasion of Ukraine and the bans on Russian imports or self-sanctioning of buyers in the West to buy Russian energy goods.

Inflation is much too high

The national average U.S. diesel prices were at a record $5.540 per gallon on Monday, per AAA data, more than $1.20 a gallon over the average gasoline price, and up from $3.111 at this time of the year in 2021.

“Not only are diesel prices at a record high, they are at their largest differential to gasoline on record, surpassing the 98-cent difference in 2008 and currently standing at a $1.20 per gallon premium. While motorists filling with gasoline have seen a slight rise in prices, diesel’s surge will be a double whammy as diesel prices will soon be passed along to retail channels, further pushing up the cost of goods,”

Patrick De Haan, head of petroleum analysis at GasBuddy
Diesel Price Surge “Maybe Out of the Solar System

As diesel prices impact every part of the economy, the fight against inflation becomes more complicated for monetary policymakers, as steeper interest rate hikes could lead to the deterioration of economic activity and household spending and, ultimately, recession.

However, there is no short-term cure to the record diesel prices in the United States. Demand is going up, while inventories are at multi-year lows and at a record low on the U.S. East Coast.

“These are numbers that are not just off the charts. They’re off the walls, out of the building, and maybe out of the solar system,”  

Tom Kloza, head of global energy research at OPIS
Oil Prices at 8:35 am

WTI Crude • 103.9 +4.14 +4.15%
Brent Crude • 106.4 +3.94 +3.85%
Natural Gas • 7.568 +0.183 +2.48%

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