Why Everyone Is Talking About High Diesel Prices

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Mark Niquette (0:09)

The expectation is a lot of pain is still ahead, that this is not a short-term situation, particularly if we don't see a quick resolution to the war in Iran.

Sarah Holder (0:18)

This week, diesel prices hit $6.50 a gallon. That's a record high.

Today, Politico reported that, in an effort to push prices back down, the Trump administration is preparing a plan for a 90-day ban on diesel exports.

Mark Niquette (0:34)

Diesel touches all aspects of the US economy. So when the price of diesel goes up, it just affects all aspects of the pricing in the US.

Sarah Holder (0:44)

The high price of diesel is starting to affect all kinds of industries, from farming to shipping to tourism. Because diesel powers tractors, trucks, home heaters, and fishing boats.

Mary Peltola (1:04)

Let's lower on the one with the fish on it, okay?

Sarah Holder (1:08)

Rob Gudgell captains a 43-foot charter boat in Washington state. He takes passengers out on fishing expeditions into the Pacific.

Rob Gudgell (1:17)

Fuel is one of the number one costs that we have to endure. The other day, fuel jumped up 85 cents a gallon.

Sarah Holder (1:25)

For a 130-mile trip, Rob's twin engines burn about 130 gallons of diesel.

Rob Gudgell (1:32)

I was paying around $600 for a trip.

Sarah Holder (1:34)

And now?

Rob Gudgell (1:35)

It's close to $1,000, not quite $1,000, but it's darn close. We try to eat some of it because everybody's going through a tough time. Cost of fuel drives the economy. Doesn't matter if you're going to the grocery store, the clothes you buy, it's plane, train, ships, whatever it is.

That's what drives the economy as a cost of fuel.

Sarah Holder (1:54)

And with the midterms coming up, the cost of fuel is also driving politics.

Mark Niquette (2:00)

Voters are inclined to blame President Trump and Republicans who are in control and power right now for high diesel prices. While they have seen price spikes in the past, they do not think that diesel or home heating oil would be at record levels if not for the Iran War.

Sarah Holder (2:25)

Today on the show, Bloomberg National Economics reporter Mark Niquette on how record high diesel prices affect everyone in the global economy, and the impact they could have on the US midterms. So Mark, help us understand what's been driving up the cost of diesel. Why has it been rising faster than the cost of gasoline?

Mark Niquette (2:50)

Well, there's a confluence of events for increasing diesel prices. We've had Ukrainian attacks on Russia refining of diesel, and Russia has also banned exports of diesel. And Russia supplied previously about 10% of the world supply of diesel.

So we've had declining exports from Russia, but it's happening at the same time that we've seen the shipments of diesel and refining of diesel in the Middle East constrained because of the Iran War. So sort of the combination of those two things has really driven up the price of diesel. And diesel is more expensive than gasoline because it costs more to refine diesel because of environmental standards. And the global demand for diesel is higher. So the price of diesel attracts higher than gasoline typically.

Sarah Holder (3:42)

And you're describing some compounding factors that have led to the rise in the price of diesel. President Donald Trump, for his part, has said that, quote, the world's diesel price rise is mostly caused by the Russia-Ukraine War, not Iran. That was in a Truth Social post earlier this month.

Is it possible to tease out how much impact the war in Iran may be having versus something like the Russian export ban? What are you hearing from the exports you're talking to about how to mitigate these various causes?

Mark Niquette (4:13)

It's hard to tease out exactly how much of the increase would come from the Iran War versus the Russian export reduction.

The administration wants to blame this all on Russian refining capacity being affected by the Russia-Ukraine War and also reduced refining capacity in the US under previous Democratic presidents. But the experts we talk to say, you know, diesel would not be at record prices, if not for the Iran War and the constraints on shipping in the Middle East.

Sarah Holder (4:46)

When most people fill up at a gas station, they're not choosing diesel to put into their car, for example, but the cost of diesel has this huge, far-reaching, sort of rippling economic impact for people. Why is it so important and what does it touch?

Mark Niquette (5:00)

Diesel powers the trucks that we use to deliver, you know, products across the country. Diesel powers the tractors that farmers use to, you know, plant and harvest their crops and also deliver their crops to silos and grain elevators. And diesel and its close derivative, home heating oil, you know, heats homes and businesses, particularly in the Northeast US and Alaska, in rural areas. So you know, when the price of diesel goes up, the price of home heating oil goes up.