Diesel prices in the United States have climbed above $6 a gallon for the first time, raising the prospect of higher costs for transport, food and other goods as businesses begin to pass on mounting fuel bills.
The national average reached $6.05 a gallon this week, up more than 60 per cent from $3.71 a year earlier, according to AAA. Its latest figures put the average at about $6.06, with petrol at roughly $4.30 a gallon.
Diesel powers much of the country’s trucking, rail, farming and construction industries, making it a key cost throughout the supply chain. GasBuddy, which monitors prices in real time, said the $6 threshold had already been breached before the AAA figures were published.
Businesses have so far absorbed much of the increase through existing supply contracts and profit margins. But economists warn that this protection will weaken if prices remain elevated and firms are forced to renegotiate contracts or impose fuel surcharges.
Thomas Ryan, a senior North American economist at Capital Economics, said households were likely to feel the effects for the rest of the year if the pressure persisted.
“Higher diesel prices are something that households are going to have to weather at least over the remainder of this year,” he said.
Why diesel prices are rising
The latest surge has been driven by a combination of geopolitical disruption, constrained refining capacity and dwindling inventories.
Patrick De Haan, a petroleum expert at GasBuddy, attributed the rise partly to the conflict involving Iran, which has disrupted global oil supplies. Brent crude, the international benchmark, rose to about $108 a barrel as tensions between the US and Iran intensified.
Refineries in Russia have also been hit by Ukrainian drone strikes, while Moscow’s diesel export restrictions have reduced the amount of fuel available to overseas buyers. S&P Global analysts said Russia’s export ban had been extended until the end of September, forcing countries including Brazil, Turkey and several African nations to seek supplies elsewhere.
The pressure has been compounded by exceptionally low stocks. S&P Global said US East Coast diesel inventories had fallen to a record low, despite refineries operating at unusually high rates. Refinery maintenance and rising demand from agriculture and heating are expected to put further strain on supplies in the coming months.
“There’s just not enough diesel right now in Russia to export any volume of it,” Mr De Haan said. “That’s unfortunately a big problem for a global economy that sees almost every piece of heavy machinery needing diesel.”
The US Bureau of Labor Statistics said diesel prices jumped 24.1 per cent in August. More than a third of the monthly increase in producer prices for goods was attributed to the rise in diesel, an indication that higher costs are already moving through wholesale markets.
Impact on food and consumer goods
Consumers may initially see the biggest effects in sectors dependent on long-distance transport and refrigeration.
David Ortega, a food economist at Michigan State University, said seafood and fresh produce were particularly exposed because they often travel long distances in refrigerated vehicles. Locally sourced goods and non-perishable products are likely to be less sensitive to fuel costs.
Retailers may also face higher charges when transport contracts expire and fuel surcharges are introduced. Furniture, cars and other bulky items could become more expensive because of the cost of moving them from factories, ports and distribution centres.
“The trickle-down is going to be everywhere, but it’s going to be so varied,” Mr De Haan said.
He said the impact was likely to become more visible if prices stayed high for more than six weeks, when large industrial buyers would be forced to replenish their supplies at the elevated rates.
