High Diesel Prices Potentially Long-Term Problem

(KNSI) – Diesel prices are at record highs, both nationwide and in central Minnesota. The cost at the pump has soared above $5.30 per gallon this week, putting a strain on truckers.

Minnesota Trucking Association President John Hausladen says the effects will be far reaching. He warns, “Trucks run on diesel, it’s that simple. We need diesel to deliver the essentials everyone needs and when the prices going up, we have to pass that along. There simply isn’t the ability of fleets to absorb that cost increase.”

There are a lot of factors contributing to the spike, from domestic supply and demand dynamics to headlines of war abroad. Hausladen says, “Many years ago diesel became an international fuel, not just a domestic fuel. Supply, demand, cost are all greatly influenced by international factors and we know that is certainly true right now.”

Geopolitical shocks from the war in Ukraine have refiners exporting more diesel than normal to European markets. The continent’s producer price index grew at an eye-watering 36.8% year-over-year in March. In America, it is less than one-third of that, registering at 11.2%. The PPI measures inflation in raw materials and other goods converted by businesses into finished products.

Hausladen doesn’t expect the issue to fully resolve itself until there is a course correction in energy strategy. “What’s the long-term policy of this country that allows us to have the fuel we need, produced domestically?” he asks. “And so, we think there needs to be an all of [the] above approach when it comes to energy policy. And we think that the Biden Administration needs to strongly rethink what it has done.”

The latest Energy Information Administration report covers the week ending April 22nd. Distillate stocks nationwide have steadily declined over the past two years. Current inventories are tighter than the pre-pandemic era, now roughly 15% below the five-year average.

Jet fuel is another source of concern as we near the busy summer travel season. Inventories in the Northeast, markets like Boston and New York, are at their lowest level ever recorded. CNBC reported last month that refiners are opting to produce diesel instead due to its higher profit margin.

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