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Economic Hotspot Q&A | Why Global Diesel Prices Continue
Beijing, October 5th (Xinhua) - Economic Hotspots Q&A | Why Global Diesel Prices Continue to Rise
Xinhua News Agency reporter Su Liang
The current tense geopolitical situation is driving up diesel prices, causing serious impacts on the economic and social life of developed economies such as Europe and the United States. According to data from the US Energy Information Administration, the average retail price of automotive diesel in the United States has recently increased by over 70% year-on-year. In addition, diesel prices in Europe have reached their highest level on record.
What factors are driving this round of diesel price hikes? Is the large-scale release of oil reserves planned by Europe and America effective? What impact will this shortage situation have on the global economy?
Why has the price skyrocketed
Currently, the main problems facing the global diesel market are "inability to transport," "inability to refine," and "insufficient inventory.
David Martin, Senior Energy Analyst at the International Energy Agency, recently stated that in the first eight months of this year, the average daily export volume of marine diesel worldwide was 4.7 million barrels, a year-on-year decrease of 10%. Moreover, the decline in ocean diesel exports showed a continuous expansion trend in the second and third quarters of this year.
In global energy trade, the price difference between diesel and crude oil is known as the "cracking price difference". This indicator roughly represents the gross profit of refineries and is also a key indicator of whether the supply and demand relationship is tense or not.
Under normal circumstances, the price difference for diesel cracking is $15 to $30 per barrel; Since the beginning of this year, this price difference has continued to widen, with diesel cracking price differences exceeding $100 per barrel along the US Mexico coast and northwest Europe in September. This reflects the current situation in the energy market, where shortages have spread from crude oil to refined oil, and evolved from skyrocketing futures prices to actual production and daily life.
At the same time as diesel transportation is hindered, global refining capacity is also impacted. Due to attacks on refineries in the Middle East and other regions, global refinery processing capacity has not reached the same level as the same period last year. This reality means that even if diesel prices skyrocket, refineries will not have the ability to expand production capacity to fill the gap in the short term.
Even more troublesome is inventory. Reuters reported that US diesel inventories are at their lowest level since 1982, and European diesel inventories are also below the five-year average.
Multiple factors exacerbate the current global diesel crisis. Industry insiders analyze that the global shortage of diesel supply may further intensify with the arrival of the winter heating season in the Northern Hemisphere, and the shortage situation may continue until 2027.
Is releasing reserves useful
In recent days, the debate between the United States and Europe over the release of diesel reserves has been highly scrutinized.
From the perspective of the United States, as the world's largest diesel exporting country, the increase in diesel exports this year has led to a continuous decline in inventory and an increase in domestic diesel prices, which has had a negative impact on the economy.
Reuters reported that the United States' diesel exports have increased by over 20% year-on-year this year, filling the gap caused by the decline in exports in the Middle East and other regions to some extent, but its domestic inventory has rapidly declined. In addition, according to data from the International Energy Agency, the price of diesel in the United States briefly exceeded $200 per barrel in early September, which is 94% higher than the pre war level between the US and Iran.
The United States has previously proposed a ban on diesel exports if Europe is unwilling to release its diesel reserves. Goldman Sachs analysis suggests that once the United States does not export diesel, its domestic diesel prices may decline in the short term, but European diesel prices will rise.
From a European perspective, although releasing Europe's oil reserves may help lower global fuel prices, early depletion of strategic reserves will jeopardize Europe's ability to cope with winter energy shortages.
Industry insiders analyze that the current situation facing Europe and the United States is that "everyone is short of diesel and no one wants to run out of inventory".
After multiple games, the European side agreed to release strategic oil reserves under the coordination of the International Energy Agency and concentrate on releasing a large amount of diesel reserves within the first 20 days.
The large-scale release of reserves can indeed "bring down" prices to a certain extent, but the substantial problem of global diesel supply shortage caused by severe restrictions on refined oil supply in the Middle East has not been resolved. Alan Geld, Senior Vice President of Wood Mackenzie Consulting in the UK, said that releasing reserves is only a short-term relief measure, but a transfer of "today's shortage to the future".
What is the actual impact
From the perspective of economic and social life, diesel shortage is "more troublesome" than gasoline shortage.
Truck transportation, agricultural machinery, engineering machinery, mining equipment, and some ships are highly dependent on diesel. Therefore, the increase in diesel prices first increases the production and operation costs of enterprises, rather than simply increasing the cost of driving for consumers.
After the skyrocketing diesel prices in the United States, the impact has been transmitted to American farmers, truck drivers, and manufacturing companies. Reuters reported that some American companies have begun to cope with rising fuel costs by reducing vehicle usage and merging distribution routes. The head of an American waste management company even stated that now "every unnecessary truck dispatch" means higher costs.
The increase in diesel prices has pushed up logistics costs, raised commodity prices, and put pressure on ordinary consumers. Affected by energy prices, major European countries experienced a significant increase in inflation rates in September, which directly had a negative impact on economic growth.
With the fluctuating geopolitical tensions and increasing uncertainty, diesel prices may continue to rise. In this sense, diesel prices have become an important indicator for observing the global economy. The rise in diesel prices not only affects the price tags at gas stations, but also impacts the operational costs of the global supply chain.
From the current perspective, as long as the supply from major oil producing and refining areas is not restored, and global diesel inventories are not re established as a safety buffer, simply releasing strategic reserves will not solve the diesel dilemma.
Analysts say that the current situation also highlights the importance of global energy transition. In this round of diesel price increases, some economies have gained more effective "buffers" compared to other economies due to their previously successful electrification transformation.
(Editor in charge: Wei Min)
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