Spike in diesel prices threatens consumer wallets, global supply chain: experts
While the war in Iran has sent fuel prices soaring around the world, there is growing concern about how rising costs of alternative fuels could affect consumers and the wider economy.
In Canada, the price of diesel has risen to about $2.30 a liter – more than 50 percent over the past three months.
While diesel was selling for about $1.90 a liter in Calgary on Wednesday, it rose to more than $2. per liter in some parts of Canada recently.
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“It’s unprecedented. We’ve never seen anything like this in the oil market or the refined products market and it’s only getting worse,” said Calgary-based oil industry analyst Richard Masson.
“The tankers that left four weeks ago just before the war started are starting to drop where they were headed,” he continued.
About 13 million barrels of oil a day normally pass through the Strait of Hormuz at the mouth of the Persian Gulf – one of the world’s busiest and most important shipping lanes and an important oil hub – about 25 percent of the world’s oil exports.
The shutdown has disrupted oil and gas exports to the region and global markets.
“It takes three to four weeks to reach their destination, but in the last four weeks there have been no tankers leaving the Strait of Hormuz.
“Therefore, in the next few weeks, the places that need that fuel will not get it.”
While the rise in petrol prices has put a dent in drivers’ pockets, the rising cost of diesel, which the transport industry relies on, threatens to do even more damage.
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Masson said the refined products market is getting prices like $200 a barrel for diesel fuel.
“And on top of that, countries like China have banned the export of refined products.
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“The whole global market right now is upset, and people are still trying to understand what that means.”
Small business owners in Alberta are also waiting to see what happens, depending on how long the war lasts.
“Well, the price will affect shipping and delivery, for sure,” said Ernie Tsu of the Alberta Hospitality Association, who also owns Trolley 5 Brewpub in Calgary.
“We haven’t seen it go down from the big suppliers yet. I’m sure it will go down,” said Tsu, who admits that restaurant menu prices will have to go up if inventory and delivery costs go up.
However, Tsu said many restaurants are working with local farmers in an effort to keep transportation costs low and still provide the best products that serve “a lot.”
Oil industry analyst, Richard Masson, says, if diesel prices rise too much, we could see a complete collapse of supply, similar to what happened during the COVID crisis.
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Masson said if diesel prices were to rise too much, that would cause the entire transport sector to decline.
“There are two parts to that: the first is the cost of transportation is going up because of the cost of diesel and that’s being passed on to prices,” said Masson.
“Another thing is that people cannot physically hold the product so they stop sending things and so the chains start to collapse.
“I’m seeing more and more talk about the collapse of supply chains as is the case during COVID.”
Although members of the International Energy Agency recently agreed to release hundreds of millions of oil from their emergency reserves in an effort to combat a possible Middle East oil shortage, Masson said it may not help prevent a shortage of diesel, because it is not the right type of oil.
Petroleum industry analyst based in Calgary, Richard Masson, said that oil exported to the Middle East is more suitable for making diesel than light crude produced in many other parts of the world.
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“The Middle East produces a kind of sour medium, and that kind goes into the refineries to make a large part of diesel and a small part of gasoline.
“If that crude oil is lost, it has a negative impact on diesel and this is a challenge because not all crude oil is the same.”
While most oil produced in Canada is suitable for making diesel, Masson said the recent increase in US production is light oil obtained through fracking, and is not suitable for making diesel.
“We have this real problem where not only is there not enough food, but there are not the right types of refineries in the right places to keep production of things like diesel going at the rate we need – and of course, the economy depends on diesel,” said Masson.
So we have to find a way to adjust how we use it and how we do that with price. So if the price goes up, more people will stop using it and only good use will happen.
“This is what will happen in the coming weeks as this (problem) grows.”
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