the cost of diesel.
A year ago, the typical price of a gallon of diesel fuel in the United States was $3.70. Presently, at the time of this recording, it stands at $5.60. That’s a 50% increase, and some predictions suggest it could reach an unprecedented $6 per gallon by year-end. Not ideal.
America doesn’t actually run on Dunkin; it runs on diesel. Differing from gasoline, the Government can’t alter diesel formulas to attempt price reduction, nor can it dilute diesel as it attempted with gasoline earlier this year.
The reality is, our economy functions on diesel fuel. It fuels the semi-trucks and freight trains transporting your Amazon packages, the buses carrying your children to school, the tractors and combines reaping your crops, and even the tanker trucks delivering regular gas to your neighborhood station. Not to mention the numerous heavy-duty pickup trucks utilized by fleet operators and tradespeople across nearly every industry. The cost of diesel is an expense that nearly every business and locality in America needs to consider, either directly or indirectly. Hence, when it rises by 50%… well, that burden can only be sustained for a limited time.
There’s no straightforward solution—just as children are returning to school, farmers are entering peak harvest season, and the holiday shopping period is just around the corner. In the latest edition of The Drivecast, we delve into the ripple effects of the diesel price surge. How severe could it become, how far will the repercussions extend, and is $5 a gallon becoming the new standard?
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Complete Transcript
Kyle: So, Caleb, let’s clarify things here. How much diesel do you purchase?
Caleb: Honestly, I should be buying more than I do currently, as my 7.3 Ford Power Stroke is out of commission and has been for far too long.
Kyle: Ouch, touchy subject.
Caleb: Yes, you mentioned we wouldn’t discuss that on this podcast. But, for real, we have a Kubota tractor that we frequently use, and you fill it up about 5 gallons at a time, so the pain isn’t as acute. Nevertheless, doing this several times a month, you definitely notice the sting. I don’t feel it nearly as much as long-haul truckers or farmers whose fields need harvesting. It could be worse, I sympathize with them for sure.
Joel: Just think if boats—oh, wait, other people’s boats run on diesel. Thank goodness our vessels don’t require diesel. We use 91 non-oxy premium, which isn’t cheap, but it’s not diesel.
Caleb: Come on, baby.
Kyle: Nothing is inexpensive these days. Diesel prices—many people are accustomed to noticing it on gas station signs, but most overlook it since not everyone drives diesel. It’s merely another number that exists. Historically, it was often lower than regular gasoline at varying times, and it’s one of those unseen costs that, as we mentioned in the intro, impacts virtually everything in this country. Every type of business, every kind of product, at some point involves being transported, created, or powered by diesel fuel. It’s a significant matter that most people tend to overlook. We’ve had plenty of other high prices to lament; if you don’t actively use diesel, it’s out of sight and out of mind—until it’s not. So, Caleb, to summarize, why has diesel become so costly as the year has progressed, and why is it rising faster lately than regular gas?
Caleb: There are several reasons, and at least two relate to international conflicts. There’s the war between Russia and Ukraine, and also the limitations, or significant restrictions, on maritime traffic through the Strait of Hormuz. While it may be obvious why restricted traffic in the Strait of Hormuz matters—clearly, oil movement is greatly affected—the Russia-Ukraine situation is complicated for numerous reasons. Pertaining to this issue, Russia is the world’s second-largest refined fuel exporter. There have been multiple successful Ukrainian drone strikes on Russian refineries that have drastically diminished their output. The crude oil supply isn’t severely impacted in this process; the issue revolves around refined fuel—what can actually be utilized—that has emerged. When we refer to the low diesel supply, it’s not due to less oil being extracted or sent to refineries; it’s that it struggles to make it from refineries to consumers. Furthermore, the global diesel supply is impacted by all of this. It’s not like, “Oh, I procure my diesel from elsewhere.” There’s a massive demand for diesel around the globe, not just in the U.S.—one could argue especially in the U.S.—but it doesn’t change the situation. No one is faring better in this context than the others, so we all draw from the same limited supply, which is quite low.
Joel: You got a bit ahead of it there because I was going to say, referring to the Strait of Hormuz and Russia and Ukraine, I’m in Minnesota, Kyle’s here too; why do those wars and conflicts overseas affect the diesel price at my pump? That certainly crossed my mind.
Caleb: Exactly. We’re all approaching the same place asking, “Can I have more, sir?” At this moment, there simply isn’t enough to distribute. I couldn’t provide figures for price hikes elsewhere globally offhand. Here, we noted it being nearly $2.00 a gallon higher than at this time last year. Everyone is grappling with this, and we’re starting to witness the repercussions of a diesel price hike and how the economy will adjust—but I’m concerned it’s only going to worsen from here.
Kyle: Yes, and the U.S. hasn’t constructed a new refinery—this may sound absurd—since the ‘70s. We’ve merely expanded and invested in existing production facilities. I recall when Iran first targeted numerous facilities in the Middle East; it’s one thing to rebuild a pipeline or pull off a diplomatic feat and reopen something like the Strait of Hormuz, but it requires time to establish a refinery. We’re discussing hundreds of millions or potentially billions of dollars and multi-year construction. This isn’t a switch that can simply be flipped or alternate refineries sitting ready to come online. Goldman Sachs noted that currently, global refinery capacity outages are approximately 60% higher than the usual average for this season. This will ultimately apply continuing pressure on consumers into next year. This situation isn’t one where the Strait of Hormuz opens, and suddenly all this oil is released and everything reverts to normal over time. This is a much larger problem with no straightforward solutions and many more intricate factors at play that we’ll feel for months to come.
Caleb: Right. Recently, a Reuters report indicated that Russia’s export ban on fuel is expected to last through September. Don’t be shocked if it’s extended month after month due to the slow progress. There are physical restrictions on how fast these facilities can be rebuilt and become fully operational. We’re all experiencing the impact of that.
Joel: If you think America runs on Dunkin’, you’re just falling for marketing gimmicks because it genuinely runs on diesel. In theory, fewer steps are required to create diesel compared to gasoline, but regulations and taxes drive the price up even when there are no global disputes, drone strikes, and shipping bottlenecks. Caleb, tell us about the current realities regarding diesel alone.
Caleb: Certainly. Consider every item you could purchase at the grocery store—it likely arrived there via a diesel truck. Sure, you could argue last-mile delivery may be handled by EVs depending on your location, but diesel was crucial in getting those goods to where you are. That’s simply the fact of the matter. We may be fortunate that we’re not all truckers or farmers, but all those additional costs trickle down to us. I often hear older farmers around my area in the Ozarks arguing, “It’s not that difficult to create diesel; why should it cost this much more than gas? I could probably make my tractor run on peanut oil, whatever.” Maybe they could, right? But it’s essential to consider that for on-road use, ultra-low-sulfur diesel is required and is taxed, right? There’s absolutely no possibility of that being removed just to ease the burden on consumers’ wallets. I’ve done some quick calculations, so take this however you will, but we have diesel priced nearly $2.00 higher per gallon than a year ago. Think about a semi-truck; most have dual 100-gallon tanks, okay? For a full fill-up, that’s an extra $388. Assuming a loaded semi achieves 8 miles per gallon—many don’t get that—and factoring in the distance they can cover per day based on their allowed driving time, they’re likely refueling twice a week. This is all rough math, but if you’re filling up eight times monthly—not absurd to consider for a semi—that totals $9,040 just for diesel fuel. That’s $3,100 more than last August. You can’t escape that.
Kyle: And that’s just one truck. That’s just one truck. Imagine a fleet company with 100 trucks.
Caleb: Oh, absolutely.
Kyle: That results in an additional $300,000 per month that must be sourced from somewhere. There are numerous sectors like this, as we discussed: trains, farming machinery, construction equipment, even pickup trucks. However, semis transport the majority of goods in the U.S., particularly to the final destination, where items are sold or collected. It mirrors the scenario we encountered when tariffs were initially introduced early last year. There was widespread concern and panic over what it meant, how prices were going to escalate, and how it would transfer to consumers. Then, for a bit, nothing changed because companies, especially larger ones, operate on extended timelines. They forecast costs a few quarters ahead, so they’re figuring out short-term methods to absorb this while simultaneously looking for ways to transfer it to consumers to recover that money, either by cutting costs or increasing prices. With the diesel issue, we’re in a staggered timeframe where prices surged significantly this summer, and if they remain at this level, it might take a couple of months, but it won’t be long before individuals begin to notice price increases as companies raise charges to transport all the goods within the country. Then the producers of those goods need to charge more because their shipping expenses have risen, and we find ourselves in a vicious cycle where the cost of diesel acts as an inflationary force. The situation is quite grim.
Joel: I want to clarify, we’re not a political outlet, nor are we delving into politics, but we are approaching an election season. We have a war affecting this, and we have rising goods cost—you mention egg prices—it’s not only diesel, it’s everything, right? It’s fascinating to observe how all of this interplays with the political landscape and whether it will influence outcomes this fall, right? Because whether it’s flock cameras or diesel prices, everyone loves a lightning rod to latch onto.
Caleb: Absolutely. At my home, my kids consume copious blueberries, strawberries, and salads. We’re facing increasing costs because of our Cyclospora outbreaks; it’s really starting to hit us.
Kyle: That diarrhea does not come at a low price, that’s for sure. Anyway, I’m curious—I live in Los Angeles, Joel lives in Minneapolis, and Caleb, you’re in Missouri. Prices are already so high out here that people are feeling it, but I haven’t heard anyone discuss diesel prices here. I would assume it’s similar for you, Joel. Caleb, you’ve mentioned your friends and acquaintances, and farmers wondering why they can’t just produce cheaper diesel. Is this something that everyday diesel vehicle or equipment users are now discussing similarly to how everyone talks about high gas prices? Has it gained traction like that?
Caleb: Oh yes, without a doubt. Fortunately, where I live, the average diesel price is lower than the national average. At the time of the recording, that’s closer to $5.10 a gallon.
Kyle: Significant savings.
Caleb: Huge savings, huge savings, everyone. Come to Missouri for your fuel. But that’s still a considerable rise from where it was. We’ve experienced numerous fluctuations over time, of course. I started driving 12 years ago, and at that time, it was commonplace to pay around $4.00 a gallon. Then that was unimaginable—it was crazy, it was wild. I had a 7.3 Power Stroke back in those days; that one ran, this one I own now does not. With dual tanks, man, you could really rack up expenses on diesel. Personally, I’m thankful that my 7.3 isn’t operational right now because filling two tanks at $5.10 a gallon, even though that’s lower than the national average, I just wouldn’t do it. Frankly, for me, it’s somewhat optional; we have a gas truck available for towing. I’d probably just park that monster, so maybe it’s beneficial that it has never-ending electrical issues.
Kyle: Thanks, Ford.
Caleb: Credit to the individual who tuned it up before I bought it. It’s massively flawed over the simplest problems. This isn’t entirely a Ford issue; we can blame Ford for many, but the 7.3 Power Stroke was one of their contributions to mankind, and someone made a mess of this particular one.
Kyle: As he frequently does. Another point worth mentioning is that while the average diesel price in America is extremely high currently, it’s not the highest on record. The peak occurred in 2022 right after Russia invaded Ukraine—again, Russia and Ukraine play a significant role. That was a high of $5.82 a gallon. Clearly, a lot of inflation has occurred since then; in terms of inflation-adjusted prices, we’re still quite distant from what it was early in 2022. However, that was a brief period, and everyone understood the reasons behind it, without all these compounding global crises complicating adjustments for everyone. Analyzing the line graph, there’s a significant spike coinciding with that occurrence, then over two years it falls back—not quite returning to its original state but reverting to a level just post-COVID disruptions and just pre-Russia’s invasion. So, we are not quite in uncharted water yet, but we’re nearing it, and this time there’s no singular factor that people can maneuver around, leading everything back to some form of normalcy. We’re navigating a very unusual and unpredictable phase. It doesn’t bode well.
Caleb: Yes, we are all fatigued by the term “the new normal.” I sincerely hope that doesn’t become the permanent state of things regarding this, but certainly in the meantime, this is the new normal.
Joel: I think our senior editor Adam Ismail often states, “What I wouldn’t give for some precedented times.” I believe that applies here.
Caleb: Yes, I concur.
Kyle: I’m weary of living through historical moments. Another ripple effect that we briefly touched on in the intro is within school districts and local governments. School districts maintain fleets of school buses; primarily, these operate on diesel, although some use natural gas. A moderately sized school district with a standard bus fleet might anticipate hundreds of thousands of dollars in added costs over the upcoming months. That’s another significant concern; they don’t possess abundant funds to begin with, and we’ve all seen the outcome when districts face tough choices: educators are laid off, teachers don’t secure raises, class sizes increase, and then a series of cascading effects arise within schools. So, Joel, I hope you’re buckled up, that’s all I’ll say.
Joel: Yes, I mean, we haven’t received any notice from the school district indicating fuel costs will rise this year, requiring us to contribute extra, but I’ve received a plethora of other emails regarding my children’s return to school. Some individuals in this household are thrilled, others not so much; it’s an emotive period.
Caleb: Where I reside is rural, and all surrounding towns send their children to one high school servicing the entire county. It’s fair to say they travel 60 miles from one start point to the last stop. Numerous side roads factor into the equation. The same scenario applies here. When covering such distances, it’s in the morning and again in the evening. Yeah, it doesn’t look promising. I’ll tell you, it might hinder the construction of bleachers for the football field at our local high school, and I worry about what our children will do regarding their education if the bleachers are unfinished.
Joel: Meanwhile, in Minnesota, the State Fair is ongoing, and I guarantee you, diesel prices aren’t deterring anyone from making their way to the State Fair. I simply mean, one must have the corn dog and fried pickles.
Kyle: Well, that encapsulates everything here because drivers nationwide have adjusted to these higher prices over the past six months. They’ve restructured their household budgets, incurred credit card debt, or have simply dealt with it—most have managed, even if that’s not sustainable, at least people have adapted. But the diesel price, due to its widespread effects and various factors that greatly differ based on geographic location and personal circumstances, isn’t as straightforward. It’s not a matter of the price rising, seeing it on the sign, and knowing exactly how much to spend on gas this month. You have no way of anticipating how much prices will rise, which prices will increase, and when. It all trickles down when it occurs. So yes, individuals might declare, “I’m still heading to the State Fair despite driving a diesel truck,” but that’s merely one facet where diesel costs influence their lives. All those other areas will require patience and future adjustments. Again, this coincides with people gearing up for the holiday shopping period, and many have already adjusted budgets to afford Christmas or Hanukkah presents for their kids, and suddenly those costs may also rise. We’re simply trying to convey that this is something that most people are unaware of regarding how it’s going to affect them, if they even realize it will—but it will.
Joel: That sums it up, right? Hank visiting the Minnesota State Fair is going to feel the pinch when he has to fill up to drive there, and he’ll still purchase fried pickles or whatnot. Yet, Mom and Dad buying Halloween candy won’t comprehend why Twix and Reese’s have escalated in price. They’ll merely observe, “Well, eggs are pricier, thus this costs more,” not realizing it might be linked to diesel fuel, right? The reality is, it’s going to influence everything. Goods and services will cost more, especially as we approach the holiday season, and this time, it’s because of fuel.
Caleb: Yes, and you won’t see significant tax cuts on diesel to render it more affordable for consumers. Think—a hypothetical again, right? We refer back to the state fair. Imagine if all taxes on diesel were completely eliminated, making it cheaper to fill up at the pump. Well, what happens when such an event transpires? Countless semi-trucks, heavy-duty pickups hauling trailers, would obliterate interstate highways and bridges, causing significant wear on infrastructure, right? Suddenly the question arises, “Where’s the funding to repair this?” That scenario is incredibly unlikely, as the hypotheticals indicate. Do not anticipate federal authorities executing some kind of switch akin to diluting regular gasoline with ethanol. Those tactics won’t apply here, folks.
Kyle: Additionally, the same tactics don’t hold in this context, or the expectations differ: when gas prices surged at the start of the year, we witnessed an immediate uptick in hybrid vehicle sales in the U.S., as well as EVs. This came after the entire tax credit debacle that raised prices by $7,500 just by default. Many assumed, “Well, that’s the end for EV adoption for the next decade.” Sales dipped, but new car purchasers are always in the market, so when events like geopolitical disasters occur and gas prices surge by two dollars, it’s quite straightforward for someone to pivot and declare, “Alright, I’ll go hybrid for my next purchase,” allowing them to benefit from those savings. However, there is essentially one functional electric semi-truck available for purchase in the U.S., the Tesla Semi. Beyond that, it’s not feasible for any of these fleet operators to readily pivot next month’s orders to “I’ll acquire a bunch of electric semis instead, and we’ll capture those savings elsewhere.” All these heavy-duty pickup operators—heavy-duty electric trucks don’t really exist. There’s no backup to alleviate demand, as economists phrase it, to adjust demand to a point where supply can adequately catch up. It simply doesn’t work that way regarding vehicles in America, especially. We’re accustomed to seeing people react to high gas prices by changing their new car buying habits; that can’t happen for a multitude of reasons with diesel’s rising prices.
Caleb: Precisely. I’ll add this: many who buy diesel trucks for leisure wouldn’t readily admit they can’t afford one; they’d rather secure a larger loan.
Joel: That’s the ideal place to conclude. Let’s avoid discussing truck loans.
Caleb: See? I told you all, I own a diesel and I am one of you. That’s simply the reality. Nobody is going to skip out on a diesel and confess to others it’s because they can’t manage the fuel costs. Come on, guys.
Kyle: Someone assist Caleb with his budgeting; his family is struggling. Too much diesel, too much diesel.
Caleb: Too much diesel, too much diesel.
**Government Measures to Lower Gasoline Prices: Lack of Equivalents for Diesel**
In recent times, variations in fuel prices have become a considerable concern for both consumers and policymakers. The federal government has enacted several strategies aimed at reducing the effects of rising gasoline prices, yet similar approaches for diesel fuel have been less frequent. This article examines the actions taken to tackle gasoline prices, the reasons behind the absence of comparable initiatives for diesel, and the consequences for consumers and the economy.
### Federal Actions Regarding Gasoline Prices
1. **Strategic Petroleum Reserve (SPR) Withdrawals**: One prominent federal action to decrease gasoline prices has been drawing crude oil from the Strategic Petroleum Reserve. This reserve, created for emergency oil supply, has been utilized during significant price spikes to augment supply and stabilize the market.
2. **Suspension of Fuel Taxes**: In response to escalating gasoline prices, some federal and state legislators have suggested a temporary suspension of fuel taxes. This strategy aims to provide immediate relief to consumers by lowering the overall price at the pump.
3. **Boosted Domestic Production**: The federal government has also promoted increased domestic oil production through various policies and incentives. By enhancing production levels, the government seeks to improve supply and lessen reliance on foreign oil, which may contribute to lower prices.
4. **Regulatory Modifications**: The federal government has implemented regulatory changes to enable the blending of biofuels and other alternatives into gasoline. These changes can help expand supply and potentially lower prices by diversifying the fuel mix available to consumers.
5. **Consumer Assistance Initiatives**: Various programs have been developed to support low-income families with transportation expenses, including gasoline costs. These programs aim to ease the financial strain on those most affected by rising fuel prices.
### Absence of Equivalent Solutions for Diesel
While gasoline has benefited from a range of federal interventions, diesel fuel has not received similar attention. Several factors explain this inequity:
1. **Distinct Market Dynamics**: The diesel market operates under different dynamics than gasoline. Diesel is predominantly utilized in commercial transport, agriculture, and industrial sectors, making its price changes less apparent to the average consumer. Consequently, public pressure for federal action is reduced.
2. **Regulatory Constraints**: Diesel fuel faces stricter environmental regulations, complicating efforts to boost supply or decrease prices. The emphasis on lowering emissions has resulted in a more intricate regulatory framework that can obstruct swift federal responses.
3. **Limited Political Motivation**: Diesel prices, while significant, lack the same political urgency as gasoline prices. Thus, advocacy for specific federal action targeting diesel has been limited.
4. **Global Market Factors**: Diesel prices are profoundly affected by global market conditions, such as crude oil prices and international demand. Federal interventions might have a restricted impact on diesel prices due to these external variables.
### Consequences for Consumers and the Economy
The absence of federal actions addressing diesel prices could have significant ramifications for consumers and the economy. Rising diesel costs can lead to increased transportation expenses, which may be transferred to consumers through higher prices for goods and services. This situation can disproportionately impact low-income households and rural communities that depend heavily on diesel-powered vehicles for transportation and delivery of goods.
Moreover, the trucking industry, which relies substantially on diesel, may encounter elevated operational costs, potentially resulting in increased freight charges and affecting supply chains. As diesel prices rise, overall inflationary pressure on the economy can mount, complicating monetary policy and economic recovery efforts.
### Conclusion
While federal measures to mitigate gasoline prices have been pursued with varying degrees of effectiveness, the lack of parallel actions for diesel fuel raises concerns about broader economic implications. As fuel prices continue to fluctuate, it is crucial for policymakers to consider the unique difficulties posed by diesel and investigate potential strategies to address the needs of consumers and industries dependent on this essential fuel source.
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