The cost of truck diesel appears to be in retreat, but that might not be a reason for owner-operators and freight carriers to celebrate. Declining prices are reportedly a symptom of lower demand, meaning truckers are logging fewer miles.
From June 2020 to June 2022, the average price of a gallon of diesel spiked from $2.408 to $5.754. The surge sparked an inflationary firestorm and put small fleets in untenable situations. While freight transportation professionals may have started to see cost relief in 2023, the steady decline of diesel may be worse than its rise.
“U.S. inflation reached a 40-year high in June 2022, with diesel and gasoline as key components underpinning the surge in prices paid by businesses and consumers, (according to Brian Milne at DTN). Consumers continued to spend, but higher costs for businesses began to ‘curtail activity’ in home-building and, later, for manufacturing, leading these industries — heavy users of diesel fuel — to contract, easing diesel demand,” Barron’s reports.
Freight haulers may have noticed the disparity between diesel and passenger vehicle gasoline has significantly shrunk. In June 2022, diesel was a tad over 70 cents more expensive. During that same month in 2023, the difference is down to about 12 cents. The point is the country is experiencing faster falling diesel prices because demand has plummeted.
“Weaker demand, however, has led to lower diesel prices. U.S. government data show diesel demand in the first 10 weeks of this year down 12.6 percent from the comparable period in 2022, says Milne, with the steep drop in demand due to slowing growth in parts of the economy, especially for heavy industry and construction. This slowdown is further pressured by higher interest rates and the recent bank failures increasing expectations for a recession,” Barron’s reports.
What may be even more problematic is that Saudi Arabia and Russia — the world’s leading oil exporters — made deep cuts in hopes of buoying the price per barrel. Russia and OPEC pledged a 1 million barrel per day reduction, and Saudi Arabia doubled down by slashing an additional 500,000. These cuts haven’t pushed up the price truckers experience at the pump, an indicator that demand may be slipping faster than oil supply cuts.
This is not to say truck drivers are going to start losing job opportunities. The U.S., Canada, and Europe still struggle with a hefty trucker driver shortage. But, given the volatility of the industry, this might not be the best time to start a mom-and-pop truck transportation company.
Sources:
https://www.barrons.com/articles/diesel-gasoline-price-economy-f86b683a
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emd_epd2d_pte_nus_dpg&f=m
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m
https://www.ttnews.com/articles/diesel-prices-drop-34c-3767-gallon
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