Why there is a global shortage of diesel and how it will affect you, even if your car does not use diesel

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The increase in the price of gasoline, as a result of the Russian invasion of Ukraine, has generated concern around the globe, and is deepening the inflationary problem that affects many of the world’s economies.

But there is another fuel derived from petroleum that has become even more expensive – in June it reached its maximum historical price – and is causing even bigger headaches than gasoline.

Its about dieselalso know as diesel or gas oil.

What most worries the experts is that the rise in prices of this distillate is due to there is a global shortage of diesel, something that – they assure – will be difficult to reverse in the short term.

You may think that this does not affect you since you do not have a car, or you do, but it runs on gasoline.

However, even if you have never used diesel in your life, this crisis it will hit you in the pocket, wherever you are.

Why?

Because diesel is the fuel used by most cargo vehiclesfrom the trucks that transport our food, medicine and even the gasoline that we fill up at gas stations, to the ships that transport goods around the globe.

It is also what many buses and trains use.

And it is the fuel that both industries depend on to power their machines and agricultural producers to run their tractors and be able to sow and harvest.

Therefore, the lack of diesel is generating serious problems around the globewhich threaten to spread if demand continues to outstrip supply.

Reuters
Queues to fill diesel in Colombo, the capital of Sri Lanka, one of the places affected.

global crisis

The shortage of this fuel is causing mobility problems in places as scattered as Sri Lanka, Yemen and several African countries.

The increase in diesel prices has also generated protests from indigenous communities and peasants in Ecuador.

Another region where the crisis has caused enormous concern is Europe.

And it is that -unlike what happens in many other parts of the world- in the old continent many of the private car drivers use diesel, because it is a more efficient and less polluting energy source than gasoline.

Before Russia attacked Ukraine, Europe imported about two-thirds of the crude it refined to produce diesel from the first country.

But, following economic sanctions imposed on Moscow by the West, Europe has depended on the United States for much of its diesel.

Although this has prevented shortages, the impact on pockets has been notorious, with record prices on both sides of the Atlantic.

While Britons today pay more than £100 ($125) to fill up their car – worth about $2.30 per liter – truck drivers in the US pay $1.50 the liter, the highest value ever recorded in that country.

Trucks in California, USA

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The rise of diesel is affecting freight transportation in the United States.

“Price increases are so high in some states that truckers are having to pay out of pocket to load, and many are being more selective about the trips they take.”

“Some smaller trucking companies are struggling to pay wages and are considering downsizing or even closing their operations due to high costs,” Fortune magazine reported in mid-May.

For its part, the Wall Street Journal noted that “costs are particularly affecting the smaller truck fleets that make up the bulk of the highly fragmented US truck market.”

Shortage in Argentina

At the other end of the American continent, the shortage of diesel is generating more chaos.

On the routes of central and northern Argentina, there are long lines of trucks waiting to load this fuel, the sale of which has been limited in many places to 20 liters per vehicle (a small fraction of what they load).

Nighteen of the 23 Argentine provinces have supply problemsaccording to a study carried out at the beginning of June by the Argentine Federation of Freight Transport Business Entities (Fadeeac).

“The lack of diesel threatens to harm one of the most key moments for the ailing Argentine economy: the heavy harvest and subsequent planting of grains and oilseeds, such as soybeans, corn and sunflower, which are the country’s largest export good. ”, said the BBC Mundo journalist in Buenos Aires, Veronica Smink.

Smink explained that the lack of diesel worsened in Argentina because local factors were added to the shortage of supply worldwide, which further complicated the picture.

A tractor in a wheat field in Argentina

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Diesel oil is essential to harvest and sow in Argentina.

“Nearly a third of the diesel consumed in the country is imported and oil companies not only find it more difficult to get it, due to the effects of the war in Ukraine, but also importing it at current prices is not profitable for them, due to the low local prices imposed by the government”, he stated.

The causes of the crisis

But the Russian invasion is not the only reason why diesel is missing.

Even before Vladimir Putin ordered the offensive, at the end of February, world demand for diesel already exceeded supply.

The main reason for this mismatch, according to experts, was the coronavirus pandemic.

The economic paralysis caused by the quarantines in 2019 and 2020 caused fuel use to plummet, leading refineries to reduce their diesel production.

Some even closed their doors permanently and others decided to convert to refine renewable fuels, as part of a transition of the energy sector towards cleaner and more environmentally friendly sources.

When the world was reactivating, starting in 2021, diesel demand quickly outstripped supply.

Trucks line up to load diesel in Caracas, in March 2021.

Reuters
Venezuela was one of the first places to suffer from a lack of diesel.

Adding to the problem was the rapid resumption of commercial flights, as jet fuel is made from the same amount of crude oil as diesel.

John Kemp, a market analyst for Reuters, warned that rising demand has led many countries in North America, Europe and Asia to deplete a large part of their diesel stocks.

In Europe and the US, stocks fell to their lowest levels since the 2008 financial crisis, he said.

A US government official told reporters in late May that President Joe Biden is considering the option of use an emergency reserve of diesel, created in the northeast of the country more than two decades ago, and until now it had only been used once to mitigate the effects of Hurricane Sandy, in 2012.

The primary objective would be to increase the supply of fuel to lower prices, which have contributed to the US registering its highest inflation in four decades, something that could tarnish the performance of the ruling Democratic Party in the parliamentary elections next November.

However, analysts warn that the effects of releasing the northeast’s emergency reserve will be limited, since the million barrels of diesel that would be dumped on the market would not be enough to impact prices.

Economic impact

For Kemp, the global lack of diesel “heralds an impending economic slowdown“.

“The global shortage of diesel signals that the business cycle is peaking and a period of slower growth or even a recession is imminent to bring consumption back in line with production,” he said.

Various forecasts agree that we are headed for a downturn in the global economy.  Illustration of a man trying to stop an arrow from falling

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The latest economic report from the World Bank (WB), presented this week, confirms that it is seeing “a sharp slowdown in growth“, and warns that this could generate “stagflation”, as low economic growth combined with high inflation is known.

“It will be difficult for many countries to avoid recession,” said David Malpass, president of the World Bank Group, when he launched the report on June 7.

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