Diesel Prices Could Keep Inflation High

Inflation has been easing around the world. But what happens next could depend partly on the cost of diesel, a wild card that few analysts have been able to predict well.

Higher gasoline prices — lit up on giant signs on streets and highways — are typically the most visible, visceral reminder of inflation to consumers. But analysts say diesel can have a bigger impact on inflation because the fuel powers trucks, industrial machinery and agricultural equipment. The prices of heating oil and jet fuel are also closely connected to the price of diesel.

Diesel prices have risen in recent weeks because traders fear that refineries will not be able or willing to sell enough fuel to meet global demand. The apparent supply shortfall is also being driven by the geopolitical struggle between Russia and the West.

Businesses facing higher fuel costs are more likely to raise prices on groceries, consumer goods and other things. That, in turn, could force the Federal Reserve and other central banks to raise interest rates or keep them high for longer.

Diesel prices in the United States have climbed about 11 cents over the last month, to around $4.56 a gallon. Gasoline prices are down 2 cents, to $3.79 a gallon.

Analysts and users of diesel say they worry that prices could spike this winter if even a few refineries in Europe and North America shut down for repairs or maintenance. That’s because big exporters, including China, Russia and Saudi Arabia, are selling less diesel and crude oil.

Houston Walker, the chief financial officer of J.H. Walker Trucking in Houston, said prices could rise further. His business runs nearly 300 trucks in Texas, Oklahoma and Louisiana, catering to energy, building trades and medical supplies businesses.

“As diesel prices go up, my prices slowly go up,” he said.

Russian officials recently suspended diesel and gasoline exports, citing domestic needs. Before the ban, Russia sold about one million barrels of diesel a day to other countries, about 3 percent of the global trade. Some of its customers, including Turkey and Brazil, are now struggling to buy enough fuel.

President Vladimir V. Putin of Russia may also be using diesel exports as a way to put more economic pressure on Western countries. He is separately working with Saudi Arabia to reduce crude oil production, which recently sent global oil prices surging. Prices fell sharply on Wednesday, leaving the global oil benchmark around $86, up from less than $75 as recently as June.

Russia and Saudi Arabia tend to supply heavier grades of crude oil that can be turned into diesel more easily than the lighter oil produced in the United States, said Tom Kloza, global head of energy analysis at Oil Price Information Service. As a result, the Russian-Saudi production cut could set the stage for higher diesel prices this year, he added.

In addition, China, which imports oil but exports diesel and gasoline, cut its quotas on diesel exports sharply in 2022. Diesel supplies could also suffer if workers at British refineries go on strike next month as they have threatened to.

“We have a perfect storm in the diesel market,” said Sarah Emerson, president of ESAI, a research and consulting firm specializing in the energy business. She added that most of the problems had to do with the supply of diesel rather than demand, which has increased only modestly this year.

Ms. Emerson said diesel prices could jump if the Northern Hemisphere had a harsh winter, when demand tends to be at its highest for the fuel and related products like heating oil.

A cold winter combined with a diesel shortage could hit the Northeast particularly hard. According to the federal Energy Information Administration, the region accounted for 82 percent of the American households that used heating oil last winter.

Businesses that spend a lot of money on transportation for raw materials and finished products are particularly vulnerable to higher fuel costs. That’s because larger trucking companies can generally pass on higher diesel prices to their customers.

“It’s a passed-through cost that doesn’t help me or hurt me,” Mr. Walker said, adding that higher fuel costs help his customers who are in the oil and gas business. “Our bottom line is not affected.”

Transportation costs were already rising because of the recent bankruptcy of Yellow, a trucking company that accounted for about 10 percent of the less-than-truckload market, said Satish Jindel, the president of SJ Consulting Group, which advises transport and logistical companies. (Less-than-truckload companies combine shipments from multiple customers on each truck.)

Still, smaller trucking firms and drivers who own their own truck might find it hard to pass along higher fuel prices to customers because demand for transporting goods is relatively weak, said Avery Vise, the vice president of trucking at Freight Transportation Research Associates.

Mr. Kloza said he expected diesel prices to rise later in the fall. “I think we might find ourselves at the end of November with the wolf at the door,” he said.