illinois Digital News

Ukraine-Russia War: Latest News and Live Updates

0


Farmers are spending more to keep tractors and combines running. Shipping and trucking companies are passing higher costs to retailers, which are beginning to pass them on to shoppers. And local governments are paying hundreds of thousands of dollars extra to fill up school buses. Construction costs could soon rise, too.

The source is the sudden surge in the price of diesel, which is quietly undercutting the American and global economies by pushing up inflation and pressuring supply chains from manufacturing to retail. It is one more cost of the war in Ukraine. Russia is a major exporter of both diesel and the crude oil that diesel is made from in refineries.

Car owners in the United States have been shocked by gasoline prices of more than $4 a gallon, but there has been an even bigger increase in the price of diesel, which plays a critical role in the global economy because it powers so many different kinds of vehicles and equipment. A gallon of diesel is selling for an average of $5.19 in the United States, according to government figures, up from $3.61 in January. In Germany, the retail price has shot up to 2.15 euros a liter, or $9.10 a gallon, from €1.66 at the end of February, according to ADAC, the country’s version of AAA.

Fueling stations in Argentina have begun rationing diesel, jeopardizing one of the world’s leading agricultural economies, and energy analysts warn that the same could soon happen in Europe, where some businesses report spending twice as much on diesel as they did a year ago.

“Not only is it a historic level, but it’s increased at a historic pace,” said Mac Pinkerton, president of North American surface transportation for C.H. Robinson, which provides supply chain services to trucking companies and other customers. “We have never experienced anything like this before.”

The sharp jump is putting immense pressure on trucking firms, especially smaller operations that are already suffering from driver shortages and scarce spare parts. Many can pass increased fuel costs on to their customers only after a few weeks or months.

Eventually consumers will feel the effect in higher prices for all manner of goods. While hard to quantify, inflation will be most visible for big-ticket items like automobiles or home appliances, economists say.

“Really, everything that we buy online or in a store is on a truck at some point,” said Bob Costello, the chief economist for American Trucking Associations.

Credit…Alex Welsh for The New York Times

Manufacturers are also heavy users of diesel, leading to higher prices for factory goods. Food will go up in price because farm equipment generally runs on diesel.

“It’s not just the fuel we put into pickups, tractors, combines,” said Chris Edgington, an Iowa corn farmer. “It’s a cost of transporting those goods to the farm, it’s a cost of transporting them away.”

At the start of the pandemic, diesel prices dropped steeply as the global economy slowed, factories shut down and stores closed. But beginning in early 2021 there was a sharp rebound as truck and rail traffic resumed. Prices, which increased pretty steadily last year, picked up momentum in January as Russia massed troops near Ukraine and then invaded. Low stockpiles of the fuel, particularly in Europe, have added to the price pressures.

“Diesel is the most sensitive, the most cyclical product in the oil industry,” said Hendrik Mahlkow, a researcher at the Kiel Institute for the World Economy in Germany who has studied commodity prices. “Rising prices will distribute through the whole value chain.”

Refineries, which turn crude oil into fuels that can be used in cars and trucks, have tried to play catch-up on both sides of the Atlantic in recent months. But they have not been able to make more diesel, gasoline and jet fuel fast enough. That is in part because refineries have closed in Europe and North America in recent years and more of the world’s fuels are being refined in Asia and the Middle East.

Since January 2019, refinery capacity has declined 5 percent in the United States and 6 percent in Europe, according to Turner, Mason & Company, a consulting firm in Dallas.

Europe is particularly vulnerable because it relies on Russia for as much as 10 percent of its diesel. Europe’s own diesel production is also dependent on Russia, which is a big supplier of crude oil to the continent. Some analysts say Europe may have to begin rationing diesel as early as next month unless the shortage eases.

Diesel prices and Germany’s dependence on Russian energy were among the factors that on Wednesday prompted Germany’s Council of Economic Experts to cut its forecast for growth in 2022 by more than half, to 1.8 percent.

Russian diesel has been flowing to Europe since the invasion last month, but traders, banks, insurance companies and shippers are increasingly turning away from the country’s diesel, oil and other exports.

Several large European oil companies have announced that they are leaving Russia. TotalEnergies, the French oil giant, said this month that it would stop buying Russian diesel and oil by the end of the year.

The market for oil and diesel is global, and companies can usually find another source if their main supplier can’t deliver. But no oil company or country can quickly make up for the loss of Russian energy.

Saudi Arabia, for example, has not increased diesel exports because one of its largest refineries is undergoing maintenance. The kingdom and its allies in OPEC Plus have also refused to ramp up crude oil production because they are happy to have oil prices stay high. Russia belongs to the group and has significant sway over its fellow members.

Christine Hemmel is a manager of a trucking company in Ober-Ramstadt, Germany, that has been in her family for four generations. Her family’s business has almost all the challenges that medium-size haulers have faced since the pandemic’s outbreak.

Prices for tires and spare parts have often doubled. The price of wood used for freight pallets has soared. Experienced drivers are hard to find. AdBlue, a fluid that trucks require to meet emissions regulations, costs four times as much as it used to and is sometimes unobtainable, she said.

Ms. Hemmel’s company, Spedition Schanz, which has 35 trucks, pays twice as much for diesel as it did a year ago, she said. That translates into an extra €252,000, or $280,000, in expenses every three months. Under contracts with customers, the firm can pass on the increase, but with a delay of three months.

Credit…Felix Schmitt for The New York Times

“It’s insane the way prices are exploding,” Ms. Hemmel said Tuesday. She expected them to stabilize, she said, but “there is no end in sight.”

Eventually, she said, “we will pass it on to our customers, and they will pass it on to the consumers.”

European energy companies are scrambling to find alternate supplies of crude as they stop buying Russian oil. Among the challenges is that oil from the Persian Gulf tends to have more sulfur. Some European refineries can’t process that oil, and others have to make expensive changes to handle it.

Adding to European refineries’ problems, the price of natural gas has risen a lot, increasing electricity costs. Refineries also use natural gas to make hydrogen, which, in turn, is used to remove sulfur from diesel to reduce air pollution. The German government on Wednesday began preparing to ration gas if shortages become acute.

“It is one market for the price of diesel,” said Richard Joswick, head of global oil analysis for S&P Global Platts, an energy research company. “Going up in Europe pulls the price of diesel up everywhere.”

Mr. Joswick warned that as refiners rushed to make more diesel, they would inevitably produce less gasoline and other products, which could raise energy prices across the board.

U.S. refineries have exported more diesel to Europe from New York and the Gulf Coast in recent months. That’s unusual because those refineries typically sell most of their products domestically during the winter, when demand for diesel tends to be higher than in the summer.

“The Europeans produce as much as they can, but they are still short,” said Debnil Chowdhury, a vice president and head of Americas Refining at IHS Markit, a research firm. “And so the U.S. needs to fill that gap.’’

U.S. diesel exports to Europe have, in turn, helped drive up prices domestically by reducing supplies. That could become a bigger problem. Diesel stockpiles in the United States have been dropping over the last year and a half, and are at their lowest levels in eight years, according to the Energy Department.

“There is some terror” in the diesel market right now, said Linda Salinas, vice president for operations at Texmark Chemicals, a Texas company that converts imported undistilled diesel — made from used cooking oil and waste — into a renewable jet fuel. “How often do we have a major power like Russia invade another country and have a global impact like this? All the fuel streams are connected.”

Ana Swanson contributed reporting.



Source link

Leave A Reply

Your email address will not be published.