Check It Out: Let’s talk about diesel fuel
By Joan Janzen
“Let’s talk about diesel fuel,” Chuck Holton said on his recent podcast. He’s a freelance conflict reporter who has travelled the world during the past two decades. “Everybody is interested in it, but nobody understands it,” he observed.
A Pinterest post showed a fictional sign at a gas station which read: Regular (Arm), Plus (Leg), Supreme (Soul), Diesel (Kidney). Although the sign was meant to be funny, most people aren’t laughing as they watch gas and diesel prices continue to rise.
Chuck observed that the price of diesel fuel is much higher right now than it was even when inflation-adjusted oil prices were above $200 a barrel. So what’s going on? Why is diesel so high when the price of oil is half that cost?
He said the problem with diesel fuel goes beyond what’s happening in the Middle East. “Even if the blocked straits open, the prices will not drop overnight. It will be six months to a year before you will really see prices drop,” he cautioned.
He continued to explain that the price of diesel doesn’t just rely on the price of a barrel of oil. “There have been times when oil was $200 a barrel and diesel prices were lower than they are now,” he said. The reason for that is something he called “the crack,” which is the spread between the price at which producers can buy oil and the price at which they can sell diesel.
Since our economy runs on diesel, the demand stays high while the supply is getting constrained. “People need it and will pay whatever it takes and so the diesel sellers will sell it to the highest bidder, which increases the crack,” he said. Of course, he was offering an explanation in simplified terms to help people understand the present circumstances.
Chuck said the crack on diesel fuel typically runs at $5 to $15 a barrel under normal conditions. “Right now the crack is over $100 a barrel of oil. That’s on top of the price of a barrel of oil, which shows the amount of diesel fuel that’s available has dropped,” he continued to explain.
The reasons include Russia no longer exporting diesel, the closure of straits, and refineries maxed out on production or closed down.
“The demand stays high and supply is constrained. It’s a perfect storm. Diesel prices will rise,” he concluded.
Evan Fraser at the University of Guelph’s Arrell Food Institute agreed with Chuck’s analysis in his report to the CBC when he observed, “You’ve got a perfect storm of problems creating endless upward pressure on the price of food.” He said there’s usually a long lag between a bump in diesel prices and the trickle down to grocery shelves, but he suspects this time will be different.
Dan McTeague, president of Canadians for Affordable Energy, told Brian Lilley of the Toronto Sun we’re likely to see records broken from October to December. “The energy crisis has really been held back leading to record level diesel prices,” he noted. “Diesel has more than doubled in price since last year. There’s greater pressure now and a weak Canadian dollar.”
He referred to diesel as the global workhorse, an international commodity of which the world is in short supply. Every airplane and transport truck, along with the agriculture industry, requires it. Plus, we see a massive demand for diesel during the winter months.
“Diesel is the measure by which economies stand or fall. It is at the core of our economy and core of our existence and prosperity. The cost of doing business for farmers and transportation has doubled,” Dan observed.
Amidst a shortage, he said Canada doesn’t have the ability to bring more to the market in a timely fashion and the government can’t spend its way out of this problem. Dan added that it doesn’t help when the government hammers consumers with HST, GST and a second carbon tax amounting to 8 to 12 cents a litre.
Former MP Michelle Ferreri made similar observations, noting the cost of diesel impacts the cost of everything. She said removing the HST from fuel would save approximately 35 cents a litre. Scrapping the Clean Fuel Regulations would save an additional 12 cents per litre, and approving one or two pipelines could potentially save approximately 62 cents a litre.
Meanwhile, Chuck Holton was in Ukraine while recording his podcast, observing the Ukrainian people. He said, “Ukrainians taught me about the importance of diversifying, which gives you resilience. When diesel prices increase you might want to reduce the number of deliveries you get, stock up on stuff you already eat, and have a generator.”
“You should never underestimate the power of human ingenuity. People find a way to get through,” he concluded.
Joan Janzen