Diesel’s All-Time High

Jon Quast (0:02)

The pain at the pump is getting worse. Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm your host today, Jon Quast. I'm joined by my friends and contributors, Tyler Crowe and Matt Frankel. And we have a couple of things on the show today. We're gonna talk some Berkshire. We're gonna talk a question from the mailbag. But first, we wanna hit diesel prices. So as of this morning, diesel prices are at a record high of $6.51 per gallon. That's according to AAA.

And that is up 76% from this exact time last year.

And I think that it's possible that maybe some of our listeners out there are saying, I don't see how this applies to me because I drive a gas car. But let me assure you, this does indeed apply to you. This is a story that everyone in the country, I believe, is going to feel very soon. Matt, what are some of the ways and why are we going to see this for everyday consumers?

Tyler Crowe (1:04)

Yeah.

Matt Frankel (1:04)

I mean, diesel prices have pretty widespread economic implications, not just if you drive a diesel powered vehicle or have a diesel powered boat or something like that.

Trucking companies, the companies that move everything around the country, everything that you buy, everything I buy, they generally include fuel surcharges when they deliver items to their customers, and they're directly tied to the price of diesel fuels. When diesel prices rise, and it's been a long time, I think since Katrina, before we saw a six on a fuel price sign in South Carolina, I don't know about where you are, but it's been a while and it's going to cause some pain. I mean, that's a lot of, you said a 78 percent increase, that's a lot to be passing on to your customers.

Tyler Crowe (1:50)

When we talk about diesel, and we could actually expand this out to jet fuel as well, because anything that is a refined product is way up. Obviously, diesel is much higher than gasoline in part because of what you said is where diesel is much more of a must-have for shipping, for agriculture and things like that. It is the lifeblood of the supply chain industry and moving stuff from one place to another. Like I said, jet fuel is also another one we don't talk about as much because jet cargo is a thing and while we're probably not moving commodities and things like that on a jet, it's still right now jet fuel prices are about $200 a barrel and that's two times the price it was pre the Iran conflict.

That's increasing relatively fast as well. You're seeing those similar fuel surcharges on airline tickets as well. I would not be shocked if we start to see things pop up in airline traffic coming in here in the holiday season if we see these fuel surcharges really start to climb.

Jon Quast (2:51)

Is there anything that we can do about this to bring prices back down because Senator Chuck Grassley coming out and suggesting that we ban the export of diesel fuel and to me that idea kind of makes sense because the price is set with global supply and demand economics. It stands to reason that if you ban the global demand that your domestic supply is going to start outweighing your domestic demand and bring prices down. But is that how it works?

Tyler Crowe (3:21)

You could probably get a short-term swing here, but there's so many unintended consequences that would likely happen as a result. Let's just give an example. We export in total about five million barrels per day of refined products, whether that's gasoline, whether that's diesel, whether it's jet fuel, name it whatever it is. We also import about two million barrels per day of crude oil.

On a net basis, we are a net exporter. But the challenge is, is we actually export a lot more diesel, and we actually are a net importer of gasoline. If we were to start banning diesel exports, then the countries that would suffer, mostly Europe is where we do a lot of our gasoline diesel trade with, maybe they start banning gasoline or exports, and then all of a sudden we're in some tit for tat of who bans, what, where, and yeah, it could probably have some short-term impact, but I would be more worried that it would cause more problems down the road than it would having some sort of short-term self. One thing to keep in mind too is it's not just a ban or whatever of exports. One thing that's really going to be challenging no matter how we shake it, is the fact that refinery capacity, like the utilization of refining is at the highest it's been since like the early 2000s. The Atlantic Basin, so that's like basically all of our East Coast refineries in addition to a European refineries are like 97 percent utilization. It's not just because of the Iran War, but also we've seen a lot of refineries knocked out in Russia, which is impacting European fuels demand as well.