Lee Klaskow, Bloomberg Intelligence Senior Transport, Logistics and Shipping Analyst, explains how oil prices are impacting freight demand as diesel surges past $5 a gallon.
The average price of diesel has risen above $5 per gallon in the US, pushing up supply chain costs and setting the stage for broader inflation for consumers.
The price spike, which comes as part of a broader surge in oil prices following the US-Israeli strikes on Iran, is increasing costs for farmers, truckers and construction firms. With diesel at $5 per gallon, these industries are on track to spending around $6.1 billion this week on the fuel, according to BloombergNEF forecasts. The same amount of fuel would have cost just $4.5 billion ahead of the war, a 35% increase.
Road diesel accounts for roughly 66% of US diesel consumption, with large trucking fleet operators like Walmart and Amazon highly exposed to fuel cost swings. The fuel also powers agricultural machinery, ships and trains hauling goods across the country.
The widespread use of diesel feeds into the cost of goods across the economy. However, unlike gasoline, where consumers feel the pinch immediately at the pump, the higher diesel costs show up indirectly over time.
As the war on Iran extends into the third week and oil prices remain elevated, inflation pressure in the US will likely broaden beyond fuel and into consumer goods.
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