Soaring diesel fuel adds to US economic doldrums

Trucks carry more than 70 percent of US freight, and they run on diesel fuel. With diesel prices now at an all-time high, the increase is expected to ripple through a contracting economy already coping with widespread inflation and supply chain disruptions.

"The goods that we buy and purchase, they flow through the supply chain in trucks, on boats, in planes that are fueled by diesel," Tim Kraft, a professor of operations and supply chain management at North Carolina State University told ABC-11 in Durham.

"So, when you see that diesel price goes up, the shipping cost goes up, which then translates to a higher cost of goods for the items that they're shipping, so those higher costs are pushed onto us the consumer, so we see higher prices that impact our wallet."

The trucking sector also consumes around 70 percent of all diesel fuel and is a barometer of the US economy, according to the ATA (American Trucking Associations). Diesel is also used in farming equipment.

The cost of diesel hit an average of $5.43 a gallon Wednesday, up nearly $2 from a year ago, according to the American Automobile Association, and elevated by more than 4 percent from a week ago.

Trucks move roughly 72.5 percent of the nation's freight by weight, according to the ATA, and consumed 36.5 billion gallons of diesel fuel in 2019, the year before the start of the COVID-19 pandemic.

Diesel prices are now over $1 a gallon more than gasoline prices, surpassing the previous record 98-cent difference from November 2008. The average cost of a gallon of regular gasoline in the US on Wednesday was $4.24, which is $1.31 higher than a year ago, according to gasbuddy.com, a price-tracking website.

"While gasoline prices get much of the attention, diesel, which broadly is the fuel that moves the economy, has quietly surpassed its recent record high as distillate inventories, which include diesel and jet fuel, have plummeted to their lowest level in years," said Patrick De Haan, head of petroleum analysis at GasBuddy.

The recent pop in diesel prices has been attributed to the ongoing Russia-Ukraine war and falling inventories of oil and refined products such as diesel. And the trucks and trains that use that fuel will face higher costs amid a rebound in consumer demand.

"Should distillate inventories fall another 5 million barrels, which is less than 5 percent, they will be at their lowest level in nearly 20 years, compounding the problem. There's no quick solution, as the economy has seen a robust turnaround, made worse by Russia's war on Ukraine as the West fences off Russia's oil," De Haan said.

The shortage is most prominent on the East Coast, where distillates inventories have fallen to their lowest since 1996, Bloomberg reported.

"In the past 15 years, the number of refineries on the US East Coast has halved to just seven. The closures have reduced the region's oil processing capacity to just 818,000 barrels per day, down from 1.64 million barrels per day in 2009," Javier Blas reported for Bloomberg on Wednesday.

Gulf Coast producers have rushed exports to Europe and Latin American to counter a drop in resources resulting from embargoes on Russian oil production.

Ohio truck driver Geno DiFabio told Fox News on Tuesday about the strain that soaring diesel prices are putting on America's trucking industry.

"If I take a truck out and I go for 10 hours, that's about $600 worth of fuel," he said.

"Last year or two years ago, it would've been $230. Those costs have got to go somewhere, and business is so competitive today that we just can't keep eating it," he added.

DiFabio said it's not an issue that can be addressed, for example, by carpooling.

"Trucks have to be places. They have to go. Those are costs we can't get away from," he said.

Inflation hit a 40-year high in March, with the Consumer Price Index up by 8.5 percent over 2021. Prices also jumped 1.2 percent from February to March.

The Federal Reserve on Wednesday raised its benchmark overnight interest rate by 0.5 percentage point and said it would begin trimming its bond holdings next month in an effort to curb inflation. The US central bank also set its target federal funds rate to a range between 0.75 percent and 1 percent.

Professor Patrick Penfield, a supply chain studies expert at Syracuse University, told WGRZ-TV in Buffalo, New York: "Usually there's a correlation — every 10 percent that fuel prices go up, there's a 0.3 percent increase in inflation. So that's what consumers are going to see — you're going to keep seeing prices go up.

"For the grocery stores because they run on very slim margins also, so they, in order to stay in business, they have to pass that costs along to the consumer, which unfortunately creates inflation," Penfield said.

Smaller, independent trucking owner-operators are especially feeling the price pinch.

"A lot of them are dying because of the fact that fuel is killing them. … Independents are going to company drivers because they don't have to worry about fuel — they don't have to worry about mechanical or anything else," Calvin Lazier, an independent truck driver and owner/operator from Orlando, Florida, told Fox News.

Penfield added: "If you're a small trucking company last year at this time — you're paying about $10,000 for fuel — this year this time you're paying about $18,000. When you see prices go up this high — that usually means we see a lot of bankruptcies with these small truck owner/operators."

The first decrease in US gross domestic product — 1.4 percent — since the pandemic recession two years ago was reported for the first quarter by the Commerce Department on April 29. It was largely the result of a wider trade deficit as imports surged and the growth rate of inventories slowed.

On Wednesday, the Commerce Department said that the trade deficit accelerated 22.3 percent to a record $109.8 billion in March, amid a record increase in imports.

Reuters contributed to this story.