Diesel fuel hit an all-time high of $6.31 per gallon on Wednesday, and economists say the pain will spread from truckers and railroads into groceries, delivery fees and home heating bills. In California, diesel is already running at $8 a gallon, and a lack of global refining capacity means prices are unlikely to fall quickly even if the wars in Ukraine and Iran end.
Truckers and retailers feel it first
Freight haulers are absorbing the initial hit, but retail gross margins have constricted by about 15 cents a gallon as station owners hold off passing the full increase to drivers, according to Jeff Lenard of the National Association of Convenience Stores. Trucking giant J.B. Hunt said the swing in fuel prices has created at least a $10 million headwind for the company. Smaller independent truckers, who can't adjust as quickly as larger carriers with fuel-surcharge programs, are the most exposed.
Heating bills could jump 31% this winter
Home heating oil tracks diesel prices closely because both come from the same refined product. Mark Wolfe of the National Energy Assistance Directors Association said customers could pay as much as 31% more this winter if prices hold at current levels, warning that families will face higher costs for heating, gas and delivered goods at once.
Refining capacity, not crude, is the bottleneck
Jack Buffington of the University of Denver said diesel is exploding not because of crude oil prices but because perhaps 20% of the world's refining capacity is currently offline due to disruptions in Russia and the Middle East. He said it could take a year or longer for diesel to return to $4 a gallon, since "that’s not the case due to net refining capacity" even once fighting stops. Saudi Arabia's move to bring more oil to market sent crude prices lower on Thursday.
Federal Reserve Chair Kevin Warsh cited the crack spread as a factor in the Fed's decision to raise interest rates to bring price stability back for stressed consumers, pointing to inflation pressure across a broad range of goods. David Russell of TradeStation Group said the list of impacted goods and services will only grow the longer diesel stays high.
Source: CNBC
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