NEW YORK — Oil prices have eased from last week’s highs, but diesel remains stubbornly expensive across North America as tight global supplies and strong demand keep pressure on the fuel used to move much of the continent’s freight.
U.S. West Texas Intermediate crude slipped to about US$95 a barrel this week after trading above US$100 late last week.
Diesel has not followed crude lower.
The U.S. Energy Information Administration says the national average price for on-highway diesel reached US$6.529 a gallon on Sept. 21, up more than 24 cents from a week earlier. Prices averaged US$7.456 on the West Coast and more than US$8 a gallon in California.
GasBuddy petroleum analyst Patrick De Haan says the disconnect between crude and diesel comes down largely to refining capacity and unusually tight global supplies of distillate fuels.
“Diesel is the fuel that moves nearly everything you buy,” De Haan said.
A barrel of crude produces several petroleum products, and refiners cannot simply convert all of their output to diesel when supplies tighten.
De Haan says roughly 45 per cent of a barrel can become gasoline, compared with about 25 per cent for diesel, leaving less flexibility when global diesel demand outpaces available supply.
The U.S. Energy Information Administration says diesel prices reflect more than the cost of crude. Refining margins, distribution and marketing expenses, taxes and local market conditions all contribute to what drivers pay at the pump.
Global diesel supplies have also been squeezed by disruptions involving Russian and Middle Eastern exports, while U.S. inventories have fallen to unusually low seasonal levels.
Unlike gasoline, diesel demand can be difficult to reduce quickly.
Heavy trucks still have to move groceries, manufactured goods and other products, while farms, construction equipment and railways continue consuming fuel even when prices rise.
That makes diesel prices important beyond the trucking industry.
Many freight and delivery companies use fuel surcharges to recover higher diesel costs, meaning increases can be passed through transportation networks to companies shipping consumer goods.
Higher transportation costs can also contribute to inflation when businesses pass some of those expenses along through higher prices.
That means lower crude prices do not necessarily translate immediately into cheaper transportation or consumer goods.
For now, De Haan says the bigger problem is not simply the price of oil, but the limited supply of diesel and the capacity available to produce and move it where it is needed.
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