Diesel fuel prices hit record levels on Friday as the war between Ukraine and Iran devastated refineries and caused global supply shortages.
U.S. truck drivers are paying an average of $5.85 a gallon nationwide, an increase of nearly 60% from the same time last year, when diesel cost $3.71 a gallon. In California, diesel costs $7.70 per gallon, nearly $2 per gallon more than the national average.
John Kilduff, partner at Again Capital, said diesel prices have a direct impact on rising inflation. “You can do as much virtual shopping as you like,” Kilduff said on CNBC’s “Morning Call.” “It’s coming to your door in a diesel-powered truck, so there’s no way around it.”
Bob McNally, founder of Rapidan Energy, said diesel is the most ingrained fuel in the economy, even more so than the price of gasoline. McNally told CNBC’s “Squawk on the Streets” on Aug. 17 that diesel is used in “transportation, heating fuel, agriculture and industrial applications.”
“This is an important macro fuel to watch,” McNally said.
Prices are rising as Ukraine pumps pounds into Russian refineries, forcing the Russian government to ban diesel exports. Iranian attacks on tankers and regional energy infrastructure in the Strait of Hormuz have also shut down refineries in the Middle East.
Valero Chief Operating Officer Gary Simmons said during the U.S. refiner’s July 30 earnings call that the war had shut down its roughly 5 million barrel-per-day refinery.
“Refining fundamentals are very tight, and the issues in Russia and the Middle East are making them even tighter,” Brian Mandel, Phillips 66’s executive vice president of marketing, said on the company’s Aug. 5 earnings call.
Andy Lipow, president of Lipow Oil Associates, said in an email to CNBC that about 8% of the diesel needed to supply global demand of 28 million barrels per day is currently in short supply.
Russia’s diesel export ban has affected supplies by about 800,000 barrels per day, while disruptions in the Strait of Hormuz have affected about 1.2 million barrels per day, Lipow said. He said Iran’s Houthi allies had destroyed Saudi Arabia’s Jizan oil refinery, which produces about 200,000 barrels a day.
“Diesel is a stealth tax,” Lipow said. “Higher fuel costs are passed on to consumers in the form of higher prices for goods and services delivered by truck or rail.”
Correction: Brian Mandel is executive vice president of marketing for Phillips 66. The company name was misspelled in previous versions.
