Runaway diesel prices threaten to do a lot more than make inflation worse—American infrastructure is at stake
High gasoline prices are hitting Americans hard, with the national gas price average sitting at $4.48 per gallon on Monday, up nearly $1.50 from a year ago.
But it’s even worse for drivers who rely on diesel fuel.
The average driver in the U.S. doesn’t rely on diesel, as it’s commonly used by truck drivers and heavy farming vehicles. But sky-high diesel prices could not only aggravate an inflation problem that is already hurting U.S. consumers—they could have dire implications for U.S. infrastructure, and the fate of the global supply chain.
Inflation in the U.S. is currently running 8.3% higher than last year, and diesel costs staying high might make prices stay high for even longer.
That’s because diesel is a vital fuel source for much of America’s transportation infrastructure, as it’s used in most long-haul trucks and freight trains. With the current high diesel prices, it’s becoming more and more likely that distribution companies will begin shifting expenses over to consumers.
Diesel has a much higher energy density compared to gasoline, and the fuel is powerful enough to haul heavy payloads that gas cannot handle. This makes diesel a favorite for the U.S. long-haul trucking sector, and the fuel effectively props up many aspects of the U.S. supply chain infrastructure.
Everything from trucks and trains to farming and construction equipment tend to rely on diesel rather than regular gasoline. Around 75% of all commercial vehicles registered in the U.S. are powered by diesel, as are the vast majority of both large and medium-sized long-haul trucks.
These are the same trucks that carry food and most other products around the U.S., and as diesel prices surge everywhere, signs are emerging that this infrastructure is beginning to break down.
“After fuel charges and driver pay, you’ve got nothing. It’s just like community service,” one truck driver in Florida told local news station WJXT last week.
The price surges are so high in some states that truck drivers have to pay out of pocket to fill up, and many are being more selective about the trips they take. Some smaller trucking companies are struggling to make payroll and considering reducing or even closing down operations due to high costs.
High diesel prices are also creating a headache for U.S. trucking companies, and that’s already translating to higher transportation and operating costs.
“These fuel costs are the biggest thing we’re facing right now,” Jake Phipps, chief executive of building materials manufacturer Phipps & Co., told the Wall Street Journal last week. Transportation costs for the company have gone up as much as 20% this year, leaving Phipps & Co. little choice but to raise prices.
“We’re trying to use rail as much as we can, which saves a little bit. But that isn’t always possible. Otherwise all we can do is pass the cost along to our customers,” Phipps said.
The U.S. supply chain infrastructure is heavily reliant on diesel, and high prices for the fuel are starting to wear it down as trucking companies struggle to deal with the expenses.
But it’s not just the U.S.—the diesel price surge is a global problem, and right now, there simply isn’t enough to go around.
While the diesel problem is hitting U.S. truck drivers hard, Europe is bearing the brunt of the price surge, as almost half of European passenger cars run on diesel, as well as all trucks and freight trains.
Prior to Russia’s invasion of Ukraine, Europe imported roughly two-thirds of all its external crude oil, which is refined to make diesel, from Russia. These imports are beginning to be drawn down, and European countries are turning to higher imports from the U.S. to satisfy the supply gap.
The U.S. is shipping more diesel to Europe than it has in years, fuel which would have otherwise gone to resupply truck stops.
The dearth of available diesel is pushing U.S. oil refiners to ramp up diesel production this year, as rising domestic demand and the supply gap in Europe is making diesel more profitable than gasoline for the first time.
“The U.S. is now acting as the barrel of last resort for an Atlantic Basin that scrambles to find alternatives to shunned Russian crude oil and petroleum products,” Citibank analysts said in April.
Helping Europe minimize the impact of its diesel shortage is crucial to bringing global prices down, but shipping more of the fuel abroad means that U.S. truck operators are in for a shortage of their own.
And they will likely have to wait until domestic production ramps up even more for operating costs to go down.
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