It's The Diesel, Stupid

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

David Gura (0:09)

How much nuance is the president is the White House using in talking about the drivers of these higher energy prices?

Josh Wingrove (0:14)

Well, off-camera, they will make some of the same arguments. Inflation adjusted, it's not as bad as it used to be. $100 oil isn't $100 oil, the way we used to think about it.

But in reality, it's a five alarm political fire for them, and it has not only seemed to put the House further and further out of reach in these midterm elections, but expanded the Senate map into fairly jaw-dropping places like Kansas and South Carolina, where the president is campaigning. Gas prices are very closely correlated to the president's approval rating. So you've seen Trump go around, kind of knock on every door, open every cupboard, try to find every gallon of gasoline and diesel he can find anywhere, including from Vladimir Putin.

David Gura (0:55)

I'm David Gura, and this is the Big Take from Bloomberg News. Today on the show, energy prices are up. Will they take down Trump's party in the midterms?

I'm going to start by having you both introduce yourselves, first name, last name, and what you do here at Bloomberg. Josh, let me start with you.

Josh Wingrove (1:18)

I'm Josh Wingrove. I'm a White House reporter here at Bloomberg.

Will Kubzansky (1:20)

My name is Will Kubzansky. I cover refined products for Bloomberg. So that's fuels like gasoline, diesel, jet fuel.

David Gura (1:27)

This is a classic Bloomberg beat, very niche.

Will Kubzansky (1:29)

It's so Bloomberg, yeah.

David Gura (1:31)

Will, before I sat down, I checked Brent crude. It's at 106.5 a barrel, thereabouts. In the US, the average price of a gallon of gasoline, according to AAA, 433 a gallon. Diesel is about 630 Put all of this in context for us. How high are energy prices right now?

Will Kubzansky (1:47)

They're high.

Energy prices, at least on fuels, are at the highest point for this time of year that we've ever seen. Six-dollar diesel was something that was unprecedented until this year alone. To be fair, you can go back and you can do inflation adjustments and you can say, well, in 2008 and in 2022, maybe it was more comparable. But in terms of the absolute number of drivers you're seeing at the pump, it has never been higher for diesel, and this time of year, it's never been higher for gasoline.

David Gura (2:14)

How much of this is directly attributable to the war in the Middle East, the war with Iran?

Will Kubzansky (2:18)

This is a question that we have spent a while trying to get a solid answer around. The White House has said, Russia has to blame for diesel prices. Look, if you go back to the chart of Brent Crude, and you go to February 27th, and then first week of March when the war began, the cost of oil spiked, and that was certainly the cause of higher gas prices, higher diesel prices in the first months of the war. The amount of supplies that we lost coming from the Middle East through the Strait of Hormuz is much larger than the amount of supply that we lost from Russia.

With that said, as Ukraine has picked up its drone strikes on Russian refineries, the barrels we have lost from over there have risen, and that has also contributed to rising prices.

David Gura (3:01)

Will, we got this reading of the Consumer Price Index, the latest read of that index this morning.

Gasoline prices, that index up 9% in September, made up over half the monthly increase for all items. Situate energy in kind of the broader US economy, the degree to which these rising prices are affecting the overall economy.

Will Kubzansky (3:19)

I mean, look, gasoline and diesel, I think are actually two really good ways to look at the economy, because gasoline is a personal consumption item. You're a driver, you live in Michigan or Wisconsin or Iowa, and you see the price every day.

David Gura (3:30)

You're feeling that pain every day.

Will Kubzansky (3:31)

You're feeling it every day, and you fill up your car, and you say, I'm going to put X amount of money into the tank.

With that said, comparatively, if you think about your expenditures as a broad picture, there's obviously a lot more than just gasoline. Diesel prices seep through into everything else. Diesel is a fuel that is primarily used for, aside from agriculture and industry, it's used for trucking.

David Gura (3:52)

The workhorse fuel.

Will Kubzansky (3:54)

Workhorse fuel of the global economy. We've said that a lot. Diesel prices push inflation higher. We might not be seeing the impacts of higher diesel prices right now in the inflation print, because it takes time. There's pass-through from agriculture to truckers, to grocery stores, but it's a squeeze on both ends that is making the economy really feel this.