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Think gasoline is expensive? It’s cheap compared to diesel — and it’s making inflation worse

Think gasoline is expensive? It’s cheap compared to diesel — and it’s making inflation worse

Any driver who has filled up their car with gasoline this year is well aware of the run up in prices.

But while gas has come down from recent highs, that’s not the case for the fuel oil that keeps the global economy moving: diesel.

The average retail price of diesel in Canada has topped $2.40 a litre at various points this month, a previously unimaginable level that has many businesses scrambling to keep up.

There are many reasons why it is happening, but the impact boils down to one basic thing: it’s driving up the price of everything, and making inflation worse.

The problem is perhaps most acute in New Brunswick, where the price of a litre topped $3 earlier this month, including an eye-watering jump of almost 70 cents overnight.

That’s because almost all of the province’s fuel needs are supplied by the Irving Oil refinery in Saint John, which shut down for maintenance recently, taking 300,000 barrels a day of supply off the market.

“When the markets grow extremely tight, drastic moves in price can happen,” said Patrick De Haan, a Chicago-based analyst with GasBuddy.com. “Call it desperation.”

Desperation is an apt descriptor for the diesel supply situation in Atlantic Canada and New England because barrels that might otherwise be available to meet local needs are being diverted to the other side of the ocean.

“Europe is trying to move away from Russian oil products like diesel fuel, and as a result of that, much of the product that could be imported into the Northeast or eastern coast of Canada, as well as the Northeastern U.S. is being pulled over there,” De Haan said.

With prices so high in one part of the continent, diesel in other parts of North America got pulled into the region to satisfy demand, so prices rose elsewhere across the country, too. Though not as extreme, diesel prices spiked as far away as Alberta and B.C. earlier this month.

Prices actually started taking off this summer, when Europe was busily stockpiling for the cold winter ahead. In early August, gasoline and diesel were both averaging $1.80 a litre across Canada, according to government data. Within a month, diesel was over $2, while gasoline was $1.80. That gap has grown wider ever since.

Diesel shortage driving up farm costs

David Coburn, a sixth-generation farmer in New Brunswick, is feeling the pinch.

“It adds about $1,000 a day to our production costs,” he told CBC News in an interview. “We’ve got seven farm tractors … loaders, three trucks and a combine and they all take diesel fuel.”

He says a year ago, if he was lucky, he could fill up with diesel for about $1.50 a litre. It now costs twice that to keep his farm running, and he says “there’s no hope of recouping this extra cost — it’s just straight off your bottom line.”

A recent spike in the price of diesel added $1,000 a day to the cost for David Coburn to run his farm. (CBC)

Coburn knows truckers who are letting their rigs idle right now, waiting for things to settle down, but says he doesn’t have that option. He needs to harvest his crop of corn before the cold weather sets in, in order to keep his 35,000 chickens fed through the winter.

“The forecast is calling for snow on November 20, we’ve got to get our profit. We can’t sit and wait,” he said.

Drivers may wince when the price of gasoline goes up, or decide not to drive if they can. But the trains, trucks, boats, and barges that keep the economy moving run on diesel — and they don’t have that option.

It’s primarily a transportation oil, but it can also be used as a heating oil. With the energy situation in Europe being what it is, a lot of diesel that might be available for trucks and farm vehicles in North America has been stockpiled in Europe, says Paul Posco, an analyst with Kalibrate.

“Ten years ago, if we’d lost the Irving refinery, we would have had enough spare capacity in the rest of the market,” he said. “But it’s not there anymore.”

And air travel getting back to pre-COVID levels isn’t helping either, he says.

The Irving Oil refinery in Saint John, New Brunswick, recently shut down for maintenance. (Devaan Ingraham/Reuters )

“Diesel, kerosene or jet fuel, they’re basically all the exact same part of the barrel, they’re all what’s known as the distillate barrels,” Posco said.

“When we first went through COVID, and everybody stopped driving, gasoline had that chance to build up some inventory, but we didn’t really stop moving goods so diesel didn’t see the same drop.”

Some relief may be in sight

The good news is that the Irving refinery has reopened, bringing some more supply back to the market, and high prices are proving to be enough of an incentive for the global market to start sending diesel to the region. Roughly a dozen tankers filled with 3.6 million barrels of distillates like diesel are currently en route for New York harbour, due to arrive in early December.

That should bring prices down, but  Posco notes that inventory levels for diesel are at the lowest they’ve been since the 1980s.

In the meantime, the trucks that haul much of what Canadians buy will have to pay whatever it takes to keep going, which is why farmer Coburn has a warning for consumers.

“This is going to drive inflation,” he says. “All of our food goes on our truck at some point in time so this is not gonna help the inflationary figures.”

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Eliot Bowman

Eliot Bowman (Eli Bowman) is a Journalist at Flaunt Weekly covering Business News.

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