Here’s how diesel prices slam your wallet in hidden ways | Company
LOS ANGELES — If you’re wondering what inflates the price of anything you buy, the cost of a gallon of diesel is a good place to start.
Record gasoline and diesel prices across the country are a major contributor to the kind of inflation not seen in 40 years, and it’s worse in California, where both fuels cost more than anywhere else in the country.
For motorists, each visit to the gas pump brings a new dose of pain. But consumers should also be concerned about how diesel, something most people never buy, is quietly eating into their wallets.
This is because diesel is the world’s economic engine and the price of fuel has climbed faster and higher than gasoline.
“People should be very worried. It will ripple through the economy,” said economist Philip K. Verleger Jr., who has analyzed energy markets for more than 50 years.
Gasoline and diesel were driven higher by the sharp rise in oil after Russia invaded Ukraine and the United States banned Russian petroleum products. Strong demand for both fuels added to the jump.
U.S. diesel prices jumped to $5.57 a gallon on Monday from $3.25 a year earlier, according to the Energy Department’s weekly survey, although major trucking companies are benefiting from some protection against price spikes through contracts with suppliers.
In the United States, trucks and trains are the biggest users of diesel. They move most of the products consumers use as well as raw materials to manufacturers, construction sites, etc., Verleger said, putting upward pressure on prices throughout the supply chain.
Diesel also powers large sectors, including agriculture, construction and manufacturing. Even your favorite food truck is probably running on diesel, which is going to drive up the cost of your mobile comfort food.
To understand how diesel prices affect consumers, look at trucking operations such as Liberty Linehaul West.
The Montebello company spends an average of $1,340 per truck, down from $770 a year ago, to fill its 50 big rigs with diesel, President Greg Dubuque said. For trucks on California-only roads, the cost is significantly higher because all fuel – whether it’s diesel for an 18-wheeler or gasoline for a passenger vehicle – costs much more in the Golden State. than anywhere else in the United States.
Because Dubuque pays so much more for diesel, consumers are likely to pay more for everything the company provides.
And Liberty Linehaul delivers a lot, with many of its rigs shuttling between huge warehouses and retailers of all sizes in the United States and Canada. These loads contain items as small as jewelry or as large as furniture. Another common delivery is clothing.
Additionally, almost all of these products arrived at the warehouse from overseas via freighter (using diesel for part of the trip) and diesel-guzzling truck.
Liberty Linehaul is also doing a healthy business bringing rigging, lighting and audio equipment to major entertainment events, which adds pressure on promoters to raise ticket prices.
“We’re trying to handle it as best we can, but it’s tearing us apart,” said Dubuque, who also chairs the California Trucking Association. “As an industry, we have never seen anything like this. It is difficult to keep pace as this price increases, and this has affected our bottom line by at least 12%. »
Members of the diesel-dependent trucking group haul an even wider range of stuff than Liberty Linehaul, Dubuque said, just about “any product that needs to get from one point to another.” The list includes food, fuel, medical equipment, processor chips and cars.
Walmart and Target last week cited surprisingly high fuel costs as a factor in quarterly earnings falling short of Wall Street expectations, and shares of both retailers have plunged. Executives from the retail giants said the unexpected rise in fuel and other costs was translating into higher prices for shoppers.
At Walmart, which has a fleet of 7,400 diesel trucks, U.S. fuel costs rose more than $160 million from the company’s forecast, chief executive Doug McMillon told analysts.
“We generally passed on supplier cost increases to the cost of goods by category, but fuel costs accelerated in the quarter faster than we were able to pass them on,” McMillon said.
Soaring fuel prices, of course, were not the only reason for the inflation of the 1980s. Supply chain problems, high consumer demand and rising labor costs have all a part of the problem, as the National Retail Federation noted in its latest monthly economic report.
Here is a sampling of industries impacted by soaring diesel prices and how some of these higher costs are reaching consumers: Agriculture
American agriculture depends on diesel to power most heavy farm equipment.
The plows that prepare the ground for planting run on diesel. Tillage machines that crumble and aerate the soil and machines that fertilize it use diesel. Planting and seeding equipment needs diesel. Once the food is grown, along come the harvesters, which run on – you guessed it – diesel.
High diesel prices further complicate farmers’ financial situation, Verleger said.
“Farmers pay for diesel, plant, hope crops come out, hope prices are right,” he said. “Now they may not have enough cash and the banks may not be providing them with the cash to buy all the fuel they need. They can plant smaller crops, which just means food prices are going to be even higher. ” Construction
Diesel is the workhorse of the construction sector, accounting for 98% of the industry’s energy consumption, according to the Diesel Technology Forum, a trade group that promotes diesel technology. Uses include heavy equipment such as excavators to dig foundations, graders to move soil, and pile drivers to reinforce foundations.
Consider the typical office building. This may require the removal of three to four floors of soil, transported by diesel trucks. Cranes, powered by diesel, help workers build the frame of the structure. All the equipment needed to operate an office building arrives there by diesel truck.
The construction of new houses is also affected, as well as Grandma’s apartment or the expanded kitchen you have planned.
Those devices you ordered but are still waiting for? Once arrived, they will be delivered by diesel truck. Manufacturing and Mining
Diesel is a fundamental fuel in mining and manufacturing, as well as logging, the Diesel Technology Forum said.
More than 60% of mining and fuel production equipment in the United States is diesel-powered, the group said.
Manufacturers use a wide range of diesel equipment to, as the Diesel Technology Forum put it, “create the goods and services that Americans use in everyday life.” For example, diesel fuel often powers steam boilers used in chemical plants and textile mills, according to the National Renewable Energy Laboratory.
Many industrial facilities also have diesel generators for backup power, a use shared by institutional facilities, hospitals, office buildings and electric utilities, according to the Department of Energy.
The industry that transports you, your children and your belongings still depends on diesel despite some breakthroughs in alternative fuels and electric vehicles.
More than 80% of US goods are imported, according to government data, meaning they likely arrived here by ship or truck. Planes fly on kerosene, but air cargo operations rely on lifts and diesel vehicles to move planes, according to the Diesel Techology Forum.
In California, more than 80% of all consumer goods are delivered by diesel trucks, according to the California Trucking Assn. Nationwide, 76% of all commercial vehicles and 98% of all large trucks use diesel, the Diesel Technology forum said.
That means your habit of late-night e-commerce and your next shopping mall errand could cost you more because diesel costs more.
Are you moving into a new house or apartment? Expect the truck carrying your belongings to be diesel powered.
Some of the most valuable cargo includes children, and 95% of all school buses are still powered by diesel, according to business analytics firm IHS Markit. You don’t care because you don’t have kids? You still pay for public education with your taxes.
Eight to four percent of transit buses in the United States burn diesel, the Diesel Techology Forum said. Almost all of the country’s 23,000 locomotives, transporting freight or people, gobble diesel. Why diesel will remain expensive
Diesel prices will likely stay high longer than gasoline prices as diesel inventories have fallen to multi-year lows, said Patrick De Haan, head of oil analysis at Gas Buddy. Energy Department data released Tuesday showed inventories of distillates, a category that includes diesel, are 22% below the five-year average for this time of year.
California brings its own issues to the table. De Haan said diesel production at state refineries was down 26%. California’s strict air quality regulations dictate cleaner fuels than those produced in most of the United States, and few refineries outside the state make unique blends.
Also, the embargo on Russian oil imports hit California in a way that didn’t affect other states as much.
“Russia has sold the United States 800,000 barrels a day of petroleum products, mostly semi-refined heavy oil, which California refineries love because it’s already been partially processed,” De Haan said. California refineries have struggled to replace Russian products at a comparable price, he said.
Energy economist Verleger takes a long-term view, taking into account the cyclical nature of energy markets and the economy.
“The diesel problem, it’s pretty serious, and I think I know how it’s going to work out,” he said. “I think a year from now we’re going to look up and say, ‘How did we get into this bad recession?’ “