These high fuel costs are just the first devastating shoe to drop, the negative effects of which will ripple throughout the entire economy, with increased transportation prices adding stress to inflationary pressures already shooting up the cost of goods and services. In March, the year-over-year inflation was marked at 8.5 percent, the highest rate since 1981. Bloomberg Economics predicts that U.S. households will spend another $5,200 this year, or $433 a month, for the same basket of goods as last year.
While diesel prices might not immediately alarm many consumers who rely on regular unleaded gasoline for routine transportation, tankers, trains, trucks, farming machinery and other industrial equipment rely on diesel.
“Diesel is the fuel that powers the economy,” Patrick De Haan, the chief petroleum analyst at GasBuddy, told CNBC. These increased costs are “certainly going to translate into more expensive goods.”
Tom Kloza, head of global energy research at OPIS, said that in years past a barrel of diesel typically sold for $10 above the price of crude oil. Today, that differential – known as the crack spread – has surged to a record high above $70.
Despite the price increases, the Biden Administration has continued to antagonize the oil and gas industry with a cascade of new taxes and regulations that hamper production.
In April, President Joe Biden’s Department of the Interior released plans to resume oil and gas leases on federal lands in compliance with a court order following a 15-month suspension. The agency’s compulsory sales offered only 20 percent of the lands that were initially nominated and approved for leasing, complemented by a 50 percent spike in royalties from minerals extracted.
Despite moving forward, the administration has been clear about its desire to shut down the federal lease sales. These sales were only scheduled after a federal judge in Louisiana deemed the administration’s pause on them illegitimate last summer.
“We don’t feel they are needed,” explained White House Press Secretary Jen Psaki, even as Psaki and the president repeatedly blame Russia’s war in Ukraine as the reason for rising prices with the motto “Putin’s price hike.”
White House climate adviser Gina McCarthy has been even more explicit.
“President Biden remains absolutely committed to not moving forward with additional drilling on public lands,” McCarthy said on MSNBC.
The left’s animosity to oil and gas exploration has chilled investment in the labor- and capital-intensive industry, cooling production in the process even as prices skyrocket. To suppress gas prices ahead of the November midterms, President Biden ordered the self-proclaimed “unprecedented” release of stored crude from the nation’s emergency stockpile, with 1 million barrels put on the market daily for the next six months beginning next week.
The president has offered no plans to restock the emergency reserves.
Higher diesel prices is translating to higher profit margins for refiners, who are now incentivized to make as much as they possibly can. At a certain point, this could lead to tightness in the gasoline market, pushing up the high prices consumers are already seeing at the pump.
In the meantime, consumers can expect prices for goods to keep on climbing.
“It’s going to be a double whammy on consumers in the weeks and months ahead as these diesel prices trickle down to the cost of goods — another piece of inflation that’s going to hit consumers,” GasBuddy’s De Haan said, adding that the full impact of the recent surge in prices has yet to be felt. ✪