Wed. Sep 27th, 2023
    Rising Diesel Prices Threaten Global Economy

    Diesel prices have been soaring to decades-long seasonal highs in the US, Europe, and Asia, causing concerns about the impact on the global economy. The increasing price of diesel has largely been attributed to OPEC+ cutting oil production by 2.7 million barrels a day, along with the extension of production cuts by Saudi Arabia and Russia. As a result, the price of oil has surged from under $73 a barrel in late June to over $94 a barrel, leading to a global shortage of diesel.

    Refineries have been struggling to meet the demand for diesel, resulting in higher prices. The supply shortages have forced refineries to shift their focus from producing diesel to producing petrol and jet fuel. Additionally, the refining sector faces structural challenges as smaller and older refineries have shut down due to reduced demand during the pandemic. While new refineries are being established, the existing refineries are unable to keep up with the growing demand.

    The refining industry also faces environmental pressures and the transition toward the electrification of vehicle fleets, which deter investments in new capacity. This, coupled with seasonal maintenance and fires impacting plants in the US, Europe, and Russia, further reduces refining capacity.

    The imbalance between diesel supply and demand could worsen if China’s economy recovers from its current slowdown. China, which faced sanctions on Russian oil and distillate exports, has been using its excess inventory to meet domestic demands. This redirection of diesel to the domestic market puts further strain on global supply.

    Diesel is a critical fuel for various industries such as agriculture, construction, manufacturing, transportation, and shipping. The sustained high prices of diesel will have a widespread impact on industry and consumer costs, potentially leading to higher inflation rates. Central banks may be forced to raise interest rates to mitigate the inflationary effects.

    The global economy, already fragile with challenges in China, Europe, and the US, may face additional pressures from rising diesel prices. Unless there is a change in production cuts by Saudi Arabia and Russia or a significant global recession that reduces demand, relief from the current squeeze on diesel prices is unlikely.

    – Original article
    – Definition of diesel: a heavy petroleum distillate used as fuel in diesel engines