Latest / DEEP INSIGHT / Why diesel prices are surging, even in the world’s biggest exporter

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Why diesel prices are surging, even in the world’s biggest exporter · DEEP INSIGHT

• 0:00
  Speaker 1: So why is the world struggling to find enough diesel?
• 0:03
  Speaker 1: And what happens if America decides to keep more of
• 0:06
  Speaker 1: its supply at home? I want to bring in now
• 0:08
  Speaker 1: George Shaw. He's senior analyst at the trade intelligence firm Kapler.
• 0:13
  Speaker 1: Good to see you, Mr.
• 0:14
  Speaker 2: Shaw.
• 0:14
  Speaker 1: Let's talk a bit about what's happening right now in Russia,
• 0:17
  Speaker 1: the world's second biggest exporter of diesel. It has just
• 0:21
  Speaker 1: extended its export ban. So tell us how tight the
• 0:25
  Speaker 1: global diesel market is right now.
• 0:29
  Speaker 2: Thanks very much, Brent. Yes, it is indeed somewhat bad news,
• 0:34
  Speaker 2: I guess, for gas and diesel supply globally with the
• 0:40
  Speaker 2: news of the extension by Russia. To some degree it
• 0:43
  Speaker 2: was expected, but this adds to the litany of supply
• 0:49
  Speaker 2: problems that we have on the diesel side. You're missing
• 0:53
  Speaker 2: significant volume from the Middle East still, maybe 600 kBD.
• 0:59
  Speaker 2: of diesel that, you know, would be hitting the global market.
• 1:02
  Speaker 2: The extension of the ban from Russia effectively adds, you know,
• 1:08
  Speaker 2: another 600 to 700 KPD missing from the global market. And,
• 1:14
  Speaker 2: you know, with the escalation as well of fighting, you know,
• 1:20
  Speaker 2: trouble in the Red Sea, that adds a kind of
• 1:22
  Speaker 2: a new front for diesel supply, right? Specifically certain refineries,
• 1:26
  Speaker 2: you know, getting hit, Gazan, and, you know, potential impact
• 1:30
  Speaker 2: on refineries in Yangbu, which are key locations for diesel supply,
• 1:34
  Speaker 2: particularly to Europe and East Africa.
• 1:36
  Speaker 1: Why does a shortage of diesel, why does it have
• 1:39
  Speaker 1: a bigger impact on the wider economy than a shortage
• 1:43
  Speaker 1: of petrol?
• 1:46
  Speaker 2: Yeah, it's very true. It's because really diesel is, you know,
• 1:53
  Speaker 2: it's the lifeblood of the economy, right? Everything that arrives
• 2:00
  Speaker 2: to you, diesel's been involved somewhere, and petrol, it's a
• 2:08
  Speaker 2: bit more discretionary, shall we say. It's really focused purely
• 2:13
  Speaker 2: on the transportation side and on private users. So if
• 2:18
  Speaker 2: you get high prices... Users can change the behavior a bit.
• 2:23
  Speaker 2: It's less easy for industry to kind of suddenly stop
• 2:28
  Speaker 2: using diesel because it's a key input into the economy.
• 2:36
  Speaker 2: If you think of mining, for example, I mean, it's
• 2:39
  Speaker 2: foundational to that. So the prospect of, let's say, a
• 2:42
  Speaker 2: gas oil, the U.S. diesel export ban, you know, what's
• 2:46
  Speaker 2: Chile going to do in order to get its copper, right?
• 2:48
  Speaker 2: It affects everything along the supply chain, including into other industries.
• 2:55
  Speaker 1: Yeah, I mean, and farmers too, you know, they're the
• 2:57
  Speaker 1: first ones to say that they're suffering because so much
• 2:59
  Speaker 1: of their equipment needs diesel. Several European countries, they've just
• 3:03
  Speaker 1: released their latest inflation figures, and the numbers are all up.
• 3:08
  Speaker 1: The rise is driven partly by the cost of diesel.
• 3:11
  Speaker 1: So how quickly does The price of diesel feed into
• 3:14
  Speaker 1: the cost of other things. It does.
• 3:18
  Speaker 2: I mean, it does take some time, right? I mean,
• 3:21
  Speaker 2: I would say that you've got to think that this
• 3:23
  Speaker 2: crisis has been going on for seven months now, right?
• 3:26
  Speaker 2: Since this is the seventh month that this has happened. And,
• 3:30
  Speaker 2: you know, some markets have been more resilient than others. And,
• 3:34
  Speaker 2: you know, it's these high prices that we currently have,
• 3:40
  Speaker 2: you know, they took some time to get there. um
• 3:43
  Speaker 2: so it's i would say it's you know the inflationary
• 3:49
  Speaker 2: aspect of it is only perhaps going to sort of
• 3:51
  Speaker 2: get worse as this crisis kind of goes on because
• 3:53
  Speaker 2: really the high prices are probably here to stay to
• 3:57
  Speaker 2: some degree you know as best as you can kind
• 3:59
  Speaker 2: of discern um you know it's for as you can
• 4:04
  Speaker 2: look into the future it There's not really much let
• 4:08
  Speaker 2: up for diesel prices currently. There's no sort of magic
• 4:11
  Speaker 2: bullet in terms of supply. The real magic bullet is
• 4:13
  Speaker 2: basically that we get the straightforward moves back, that we
• 4:16
  Speaker 2: then get more supply into the market, eases the diesel
• 4:20
  Speaker 2: prices and eases the inflationary pressures, which are coming to bear.
• 4:25
  Speaker 1: And of course, we haven't mentioned the United States, which
• 4:27
  Speaker 1: is the world's biggest exporter of diesel. It's also seeing
• 4:31
  Speaker 1: diesel prices rise. Why is that? The US has enough
• 4:35
  Speaker 1: for every user within the U.S.? It's.
• 4:42
  Speaker 2: So, I mean, the U.S. is, you know, it's still,
• 4:46
  Speaker 2: it's still impacted by international prices, right? Your, you know,
• 4:50
  Speaker 2: your users in the Midwest, you know, the agriculture, you know, like,
• 4:53
  Speaker 2: like what Chuck Grassley was referring to, you know, for,
• 4:57
  Speaker 2: you know, when he was sort of proposing this export ban,
• 4:59
  Speaker 2: they are, you know, they have to some, to some
• 5:02
  Speaker 2: degree compete with with uh you know the reg with
• 5:06
  Speaker 2: export prices so the u.s isn't isn't isolated from this
• 5:10
  Speaker 2: problem even though it has abundant diesel right um as
• 5:14
  Speaker 2: you point out but those prices are also determined by
• 5:17
  Speaker 2: international markets as well and you know international markets are
• 5:21
  Speaker 2: effectively starved of diesel and are you know tapping the u.s
• 5:26
  Speaker 2: in order to you know in order to satisfy their
• 5:29
  Speaker 2: own demand because we just do not have the other
• 5:31
  Speaker 2: sources of supply in the international market. And so there's
• 5:34
  Speaker 2: so much pull on U.S. production that that's then, you know, making,
• 5:39
  Speaker 2: you know, translating into higher prices in the U.S. Atlantic
• 5:45
  Speaker 2: coast and in U.S. Midwest, which are, you know, two
• 5:49
  Speaker 2: big diesel consuming locations.
• 5:52
  Speaker 1: I'm sure you're aware that the Trump White House has
• 5:54
  Speaker 1: reportedly been holding emergency talks on a possible diesel export ban. Now,
• 5:59
  Speaker 1: if the goal is to keep down costs for U.S. consumers,
• 6:04
  Speaker 1: would keeping diesel at home, would it actually work then?
• 6:11
  Speaker 2: I'm quite skeptical of it. I think you might have
• 6:16
  Speaker 2: an initial impact. And when this was sort of first announced,
• 6:21
  Speaker 2: we saw U.S. diesel prices actually kind of as they
• 6:26
  Speaker 2: first announced, first kind of mooted as a possibility that
• 6:31
  Speaker 2: had some market traction, shall we say. You know, we
• 6:33
  Speaker 2: saw diesel prices in the US dip, indicative of perhaps
• 6:38
  Speaker 2: it would work, but it would also have, you know,
• 6:42
  Speaker 2: some of the unintended, shall we say, consequences. It would
• 6:45
  Speaker 2: impact refining, it would impact other products because, you know,
• 6:50
  Speaker 2: so many of those refineries along the US Gulf Coast
• 6:53
  Speaker 2: are geared towards exports as well, right? So it's not
• 6:56
  Speaker 2: even necessarily that if you suddenly have an export ban,
• 6:58
  Speaker 2: that would suddenly solve all of your problems in the US.
• 7:01
  Speaker 2: You would actually probably have to reduce your refinery run rates.
• 7:04
  Speaker 2: You would impact gasoline production. Gasoline prices could rise as well.
• 7:07
  Speaker 2: So could jet fuel. So again, there's no kind of
• 7:11
  Speaker 2: magic bullet here for high prices. And in some ways,
• 7:15
  Speaker 2: if you want to manage high prices, looking at more
• 7:18
  Speaker 2: like price controls or targeting taxes, et cetera, might be
• 7:22
  Speaker 2: the way to go. rather than this quite drastic, dramatic
• 7:27
  Speaker 2: and highly consequential proposed export plan.
• 7:31
  Speaker 1: George Shaw, Mr. Shaw, we appreciate your time and your
• 7:33
  Speaker 1: insights tonight. Thank you.