BY SRH
It’s Going to Cost! $10.00—Diesel Sets a New High Above $6.50 Today As Fears of an Export Ban Grow. a Gasoline Squeeze Is on the Way…
Analysts at UBS worried that the global diesel shortage could get worse because two major suppliers could pull barrels from a market that is already under a lot of pressure. Russia may keep limits on diesel exports in place until October, and in Washington, DC, talk about a US ban on fuel exports keeps growing.
AAA says that the national average price for diesel has hit $6.51 per gallon as of Monday morning. Prices have gone up an amazing 88 cents so far this month. A lot of the time, prices are going up. They’ve already surpassed the all-time high set in 2022, at the start of the war between Russia and Ukraine.
Anna Kishmariya, an energy expert at UBS, says that a Russian extension would mess up her team’s plan that exports would start to rise again in October, when a diesel surplus in the country would appear. She said that keeping the restrictions in place could mean that refinery units will be damaged more and take longer to fix than was first thought.
The bigger risk is a policy choice made in Washington, DC. This year, the US exported about 30% of the world’s diesel and gasoline. Any ban on US exports would leave big importers from other countries very vulnerable.
This weekend, Iowa Sen. Chuck Grassley wrote on X that diesel costs at the pump in his state were around $6.57 a gallon. He also suggested, “Why doesn’t Pres. Trump put an embargo on diesel exports like presidents did in the 1970s when food prices were inflated?
Due to the war with Ukraine, Trump said Monday morning that Russia had “lost control” of its fuel industry. He called for an end to the “ridiculous and never-ending” war.
The Financial Times reported earlier today that Trump said he had been on the phone with Zelensky of Ukraine and asked him to stop attacking Russian refineries with drones.
The fuel shock is happening at a bad time for the Federal Reserve because it has to deal with rising prices across the board. Last week, interest rates were raised by 25 basis points, and Neel Kashkari, President of the Minneapolis Fed, warned that high inflation is happening in more areas than just energy.
Last week, Yulia Zhestkova Grigsby and Daan Struyven, two commodity experts at Goldman Sachs, said that the diesel crisis could soon cause gasoline prices to rise, preparing the next big squeeze. “The main reason for this new recommendation is that refiners’ switching output from gasoline to diesel is rapidly tightening gasoline markets, where less elevated price levels leave room for sharp price upside if the Mideast and Russia-Ukraine conflicts continued to constrain refining output for longer or if more energy infrastructure were damaged,” Grigsby and Struyven wrote in the note.
“Will rising diesel costs push up goods prices?” asked Veronica Clark, an analyst at Citi US, a client about inflation.
The median core PCE forecast in the September SEP went up from 3.3% in June to 3.4%, which caught us off guard. We think it’s likely that most Fed predictions don’t take into account the upcoming changes, and that core PCE will end up being lower than many officials think it will be this year.
The core PCE is still hovering around 3.0 to 3.1% for Q4 and Q5. There are new worries about pass-through to core inflation because energy prices have gone up a lot again. This is especially true for diesel prices, which make transporting different goods more expensive. But there isn’t a lot of recent past evidence to show that higher diesel prices are linked to higher CPI for core goods.
As long as real income growth stays low, we are still not sure if there will be a lot of pass-through. Market rents have gone up a little in the past few months, but they are still lower than they were before the pandemic. This means that the cost of housing should continue to rise less quickly.
When it comes to the US export ban, Benjamin Salisbury, research director at Height Capital Markets, said, “It may be politically appealing, but we still expect Republicans to resist the urge to ban diesel or other petroleum exports.”
