Impact of Rising Diesel Prices on Economy and Consumers

Diesel prices in the United States have surged to new highs, largely due to ongoing conflicts in Iran and Ukraine. Experts warn that consumers will face significant burdens from these increased costs. As of Wednesday, the average price for a gallon of diesel reached $6.52, according to AAA, a stark rise from $3.69 the previous year.

Kenneth Gillingham, a professor at Yale University, highlighted the importance of diesel fuel: “Diesel is crucial for many parts of our economy.” Experts told PBS News that Americans should prepare for higher prices across a range of products, exacerbating existing inflation challenges. In August, consumer prices rose by 3.4% compared to a year ago despite diesel prices then being around $1 lower than today.

Causes of Rising Diesel Prices

Global conflicts have caused increased prices across many industries, and diesel is no exception. Gregory DeYong, a supply chain expert from Southern Illinois University, described diesel’s pricing issues as a “two-pronged attack.” The U.S. conflict in Iran has disrupted the supply of crude oil, a key diesel component.

In September, oil prices exceeded $100 per barrel. Disruptions like the closure of the Strait of Hormuz and attacks on Saudi oil facilities have fueled this increase. Additionally, Russia’s war with Ukraine has impacted the diesel supply by affecting Russian refineries, which have been targeted by Ukrainian strikes. As the third-largest producer of refined oil products, Russia’s refinery outputs hit a two-decade low in June, according to the International Energy Agency.

Ending these global conflicts might reduce strain on the oil market, but experts advise that costs will not drop immediately. Restoring refineries takes significant time, and as of September 11, U.S. refineries operated at 97% capacity, reported by the U.S. Energy Information Administration.

Industries Dependent on Diesel

Despite less than 3% of U.S. passenger cars using diesel, much of the economy relies on it. Patrick De Haan from GasBuddy calls diesel “the fuel that moves the economy.” Key industries reliant on diesel include:

• Shipping and logistics: Trucks, trains, and large vessels, including those transporting gasoline, run on diesel.
• Home heating: Approximately 4.8 million U.S. homes, particularly in the Northeast, use heating oil, essentially the same as diesel, as primary heat during winter.
• Agriculture: Machinery, irrigation pumps, and transport trucks used in agriculture heavily depend on diesel. Many fertilizers are also petroleum-based.
• Construction: Trucks delivering materials and heavy machinery used for tasks like digging and road paving operate on diesel.

Impact on Consumers

The prevalence of diesel in the economy means rising costs will likely increase consumer prices. Jason Miller, a Michigan State University professor, explains that firms must decide whether to absorb or pass on higher diesel costs. A 14% increase in truck transportation costs since January exemplifies this trend.

Retailers such as UPS, Amazon, and FedEx have added fuel surcharges. Prices will vary based on product and industry. Factors influencing price rises include:

• Transportation dependence: Products with high transport costs are more affected, such as foods shipped long distances.
• Shelf life: Long-lasting goods may have delayed price impacts, unlike fresh produce, which faces immediate cost pressures.
• Business outlook on diesel costs: Companies that expect prolonged high diesel costs are passing charges to consumers, while others viewing the rise as temporary are absorbing costs.

Ongoing monitoring of diesel trends and strategic decisions by businesses will determine the ultimate impact on consumer wallets.