Since the Strait of Hormuz closure in February, much attention has centered on rising gasoline prices. But concerns around the price of diesel are growing as the spread between diesel and crude prices in the United States surpasses $100. Strangled Middle Eastern oil exports, compounded by declines in global refinery capacities, are deepening the diesel supply crunch. Some states and communities will bear the costs more than others.
Why diesel matters
According to the US Energy Information Administration, distillate fuel oil, the petroleum category that includes both diesel and heating oil, is used predominantly for transportation, accounting for more than 75 percent of consumption within the category. Diesel’s volumetric energy density, compression ratio, and handling safety make it relatively more attractive than gasoline for big rig trucks, tractors, combines, and other heavy-duty vehicles.
Indeed, diesel is tightly integrated in trucking supply chains and the US agricultural industry in particular. Both segments are facing challenges amid elevated prices. As harvest season unfolds, farmers are warning that they will be squeezed by rising diesel costs. Similarly, the American Trucking Associations (ATA) announced that trucking activity for the month of July was 0.5 percentage points below the same month in the previous year, with overall demand lackluster outside of a few areas, including data center construction. With transportation prices higher, inflation pass-through is likely.
