Commentary: The coming diesel shortage

With the price of gasoline skyrocketing to unthinkable heights in the last year or so, the next shoe to drop is the price of diesel fuel. Or should I say the next price to rise. Not that diesel hasn't increased in price. It has. Today, the national average for a gallon of diesel is $5.29. Last year about this time, it was $3.64. But that could be just the beginning. Bad things are happening in the world of diesel as far as its supply goes. That equates to a possible increase in price, and my guess is it's going to be a nasty one. There are many factors all coming together in the supply chain of diesel, and although you might not own a diesel car or truck yourself, you are nonetheless going to feel the pain. It might not necessarily be at the pump, but prices will likely rise at just about every other store you go to. That's because it is estimated that 95 percent of goods travel at some point by a boat, truck or train powered by diesel. The war in Ukraine has certainly been pinching supplies, as Russia is a major exporter of diesel and China will soon implement an export restriction on a variety of goods, diesel being one. Add in some shutdowns of diesel refineries in the U.S. and Europe, and historic low inventories of the fuel worldwide, and it has all the makings of a severe inflationary spike in diesel over and above the bad inflation we are already seeing in other goods. Estimated costs to the U.S. economy from spiking diesel prices exceed $100 billion. Transportation fuel is the most common use for diesel, which powers most trains, semi-trucks and yes, some automobiles, all using it in lieu of gasoline. A ton of it is used for ocean freighters. Often called the dirty fuel, as it is easier to refine than gasoline, it is most commonly used in large engines and power plants, which are the lifeblood of supply lines and power for almost everything we buy. Making matters worse is a threatened workers strike deadline of Dec. 5 from the railroad unions wanting improved health care and other compensation-type demands. If the railroad strike comes to fruition, estimated costs are an astounding $2 billion a day to the U.S. consumer. If you think supply lines are slow now, just wait and see what happens if the trains stop running. Europe is preparing for what it knows is coming. Anticipating empty shelves due to fuel shortages, they are prepping for a possible run on cash (aka the banks) as people start to hoard cash and goods. Many countries expect the same and are acting accordingly before supplies get critical. More alarming is the fact diesel is also widely used as heating fuel, mostly along the eastern seaboard, but also warming homes and businesses in a variety of regions worldwide. Should a cold winter be in store, things could get very ugly in many areas of the country and indeed, the world. With supply chains already constrained due to a variety of reasons from the war, the pandemic shutdowns and a lack of available workers, a spike in the cost in the main fuel used for shipping will likely further stress retailers and consumers in obtaining goods in a timely manner. The result will be even higher prices and lack of availability on many items as shipping costs escalate. With the Federal Reserve trying to tame inflation and consumers feeling its effect on their pocketbooks, a spike in diesel will further add to the cost of just about everything we buy. This will amplify inflationary pressures and worsen the scarcity of goods we are already facing and in process, make the Fed's job of quelling inflation that much harder. This article expresses the opinion of Marc Cuniberti and is not meant as investment advice or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249.