As wars in the Middle East and Ukraine drive the price of diesel to record highs, inflation-weary consumers can expect to pay more for practically everything.
As of Friday, the average retail price of diesel fuel stood at $6.06 per gallon, according to AAA, up from $3.71 a year ago.
The New England average price is virtually identical to the national average, but far lower than that in California, which at $7.98 is the highest in the nation.
“It makes us a lot more expensive than we used to be,” said Charlie Itz, president of Itz-Ohlson Transport, a trucking company in Lynnfield.
It’s happening because, even though the US is the world’s leading producer of diesel, much of the nation’s production is exported to countries that can no longer obtain fuel from refineries in the Middle East or Russia due to military conflicts.
“The United States is experiencing this because it’s part of a global, interconnected market,” said Mason Hamilton, vice president of economics and research at the American Petroleum Institute (API).
The price spike is bad news for consumers, who usually pay closer attention to gasoline prices. But diesel is just as vital to the US economy, because it’s the primary fuel for the large trucks and freight trains that deliver most of the nation’s goods. Diesel also powers many seagoing ships. Higher diesel pricesmean we pay more for products shipped to homes and retail stores.
Moreover, the price of diesel has climbed much faster than that of gasoline, which is up by about $1 a gallon from last year. That’s largely because many US refineries are optimized to produce gasoline, helping to keep prices in check.
It all means higher fuel prices for truckers such as the independent contractors who drive for Itz-Ohlson Transport.
The company mostly handles short-range jobs, like moving shipping containers in and out of the Port of Boston. The company charges a base rate of $401 for trips within 30 miles of the port, then adds a surcharge to cover the cost of diesel. In March, the surcharge stood at 38 percent of the base rate, or $152. Now it’s up to 57 percent, or $228.
“Our customers are pretty understanding,” said Itz. “I think they’re resigned.”
Costly diesel is bad news for James Knott, chief executive of Riverdale Mills, a Northbridge-based maker of steel wire mesh used in products ranging from fences to lobster traps.
“High diesel costs affect us at virtually every stage of the supply chain,” said Knott. The company uses steel from US and Canadian suppliers, then ships its wire mesh to customers throughout the US and around the world.
When diesel gets more expensive, “those costs do not simply disappear,” Knott said. “Manufacturers must absorb them, find efficiencies elsewhere, or eventually pass some portion along to customers.”
Dean Croke, principal industry analyst at DAT Freight & Analytics, an online marketplace for truckers and shippers, said the impact of higher diesel may depend on the value of the goods being shipped. For instance, if a company is shipping costly computers, a price increase to cover fuel is hardly worth noticing. “A few hundred dollars of fuel,” said Croke, “is like a rounding error.”
But it’s a different story with lower-costproducts shipped over long distances, he said. Consumers can expect to pay a significant fuel premium for iceberg lettuce shipped from California, for instance.
While the nominal price is the highest on record, diesel is still going for well below the all-time high reached during the 2008 financial crisis, which after adjusting for inflation to today’s dollars, topped out at $7.20, according to the US Energy Information Administration.
The diesel price hikes have arrived just as the US trucking industry had begun to recover from a four-year slump. A spike in demand that began during the COVID pandemic put hundreds of thousands of new drivers on the roads. But demand fell again, pushing down the price of truck deliveries and driving many small- and medium-sized truckers out of business.
Croke said the slump would be even worse if not for the recent surge in construction of data centers to support artificial intelligence systems.These huge buildings require thousands of truckloads of construction materials and electronic gear.
“Absent that,” said Croke, “demand would be way down.”
But the trucking market has begun to recover, as a shortage of workers means fewer trucks on the road. One major reason: the Trump administration’s crackdown on noncitizen drivers, who now must have visasthat allow them to workand prove they speak English well enough to drive safely on US highways. The Department of Transportation estimates that enforcing those standards will force 200,000 drivers off the roads. That’s around 9 percent of the 2.2 million tractor-trailer drivers in the US workforce, according to the Bureau of Labor Statistics.
“We’re seeing the largest single-driver-removal event in modern history,” said Croke.
As a result, spot rates for shipping a truckload of merchandise have hit their highest levels in four years. And now, the cost of diesel is driving prices even higher.
The increase stems from tight supplies worldwide. The 2022 diesel price spike was driven by a halt in US purchases of diesel fuel from Russia. The European Union followed suit. But Russia was still able to sell its oil in other countries including Turkey and Brazil.
In all, Russia once exported over 800,000 barrels of diesel per day, making it the world’s second-largest exporter after the United States, which increased shipments to the EU to cover for lost Russian oil.
But this year Ukrainian airstrikes against Russian refineries have forced Russia to halt virtually all diesel exports. That means a big decline in worldwide diesel production, and upward pressure on prices.
The battle over the Strait of Hormuz has also had an impact. A Goldman Sachs analyst recently estimated that despite US government efforts to keep the strait open, shipments of refined oil products like gasoline and diesel are only at 35 percent of their prewar levels.
And then in March, China, a major exporter of diesel to Asian markets, halted all foreign sales to protect its domestic supply, though the Chinese government this summer allowed some exports to resume.
The US produces over 5 million barrels a day of distillate fuel oil, which includes diesel and home heating oil. That’s more than any other nation.
But there’s no way to open the tap any wider. “Basically every single refinery in the United States right now is running full out,” said Hamilton of API.
And much of their output is exported to Europe and Latin America. The US imports millions of barrels as well, with, ironically, much of New England’s diesel coming from Canada, with whom President Trump has just started a massive trade war. So far, diesel has not been caught up in the tit-for-tat retaliations by either country.
In short, the market for diesel is global and supply shortfalls anywhere lead to high prices everywhere, even in New England.