Do you think gas is expensive?Cheaper than diesel, exacerbating inflation

Any driver who has filled up with gas this year knows all too well about the skyrocketing prices.

But while gasoline has fallen from its recent highs, that’s not the case for diesel, the fuel oil that powers the global economy.

The average retail price of diesel in Canada has exceeded $2.40 per liter at various times this month, levels previously unimaginable, and many companies are scrambling to catch up.

There are many reasons why that is happening, but the impact can be boiled down to one basic thing. That’s pushing up the price of everything and making inflation worse.

The problem is perhaps most acute in New Brunswick, where earlier this month prices topped $3 a liter, a spectacular jump of about 70 cents overnight.

That’s because nearly all of the state’s fuel needs are supplied by the St. John’s Irving oil refinery, which recently closed for maintenance, depriving the market of supply of 300,000 barrels per day.

GasBuddy.com’s Chicago-based analyst Patrick De Haan said: “Call it despair.”

Desperation is an apt description of the Canadian Atlantic and New England diesel supply situation. Because otherwise barrels that might be available to meet local needs are being diverted to the other side of the ocean.

“Europe is moving away from Russian petroleum products like diesel fuel, and as a result, many of the products that may be imported to the northeast or east coast of Canada and the northeastern United States are drawn there. ‘ said De Haan.

Diesel prices started to rise this summer, and Europe was busy stockpiling for the cold winter. According to government data, the average price of petrol and diesel across Canada in early August was $1.80 per liter. Within a month, diesel was over $2 and petrol he was $1.80. Since then, that gap has widened.

Diesel shortage drives up farm costs

David Coburn, a sixth-generation farmer in New Brunswick, is feeling the pinch.

“It adds about $1,000 a day to production costs,” he told CBC News in an interview. “He has seven farm tractors: a loader, three trucks and a combine, all running diesel fuel.”

He says that a year ago, if you were lucky, you could get a full diesel for about $1.50 a litre. It now costs him twice as much to keep his farm running. “There’s no prospect of recovering this extra cost. It’s just going straight out of your bottom line,” he said.

Coburn says he knows truckers who are currently sitting idle with their rigs waiting for things to settle down, but that’s not an option. To keep feeding 35,000 chickens through the winter, the corn must be harvested before the cold weather sets in.

“The forecast is for snow on November 20. We have to make a profit. We can’t wait,” he said.

Drivers may frown when gas prices go up, or decide not to drive if they can. But the trains, trucks, boats and barges that keep the economy running are powered by diesel.

It is primarily a transportation oil, but it can also be used as a heating oil. Due to the current state of the energy situation in Europe, there is a lot of diesel stockpiled in Europe that could potentially be used in trucks and agricultural vehicles in North America, says Calibrate analyst Paul Posko.

“Even if we had lost the Irving Refinery 10 years ago, there would have been plenty of excess capacity in the rest of the market,” he said. “But it’s not there anymore.”

Nor has air travel back to pre-COVID levels helping, he said.

“Diesel, kerosene, or jet fuel are all basically the exact same part of the barrel, what’s known as a distillation barrel,” POSCO said.

“When we first experienced COVID and everyone stopped driving, gasoline had a chance to stock up, but we haven’t really stopped moving goods, so diesel won’t go down in the same way. I didn’t.”

Some relief may be seen

The good news is that the Irving Refinery has reopened and some supply has returned to the market. High prices have proven to be enough of an incentive for the global market to start sending diesel to the region. It is expected to arrive in New York Harbor in early May.

This should bring prices down, but POSCO says diesel inventory levels are at their lowest since the 1980s.

In the meantime, trucks that carry much of what Canadians buy will have to pay for whatever it takes to maintain. That’s why farmer Cobain is warning consumers.

“This will drive inflation,” he says. “All of our food will be loaded onto trucks at some point, so this won’t help the inflation numbers.”