"The rise in diesel prices is inflating the bills Brett McMahon is getting from the companies that truck in the plywood, rebar and other supplies his concrete-contracting business needs. Asking his clients to renegotiate contracts to ease that pain, he said, has been "hit or miss."
"In the private construction world, you're not going to get a terribly sympathetic ear for that," said McMahon, chief executive of Miller & Long, based in Bethesda, Md. "It's, 'Hey, you knew the risks when you signed the deal.' "
Diesel, jet and marine fuel prices are soaring, pressuring the construction companies, transportation businesses and farmers that are the biggest users. Behind the rise: production cuts made by the Organization of the Petroleum Exporting Countries and its allies, which have propelled crude prices to 10-month highs and boosted the premiums refiners can charge for making the heavy fuels that power trucks, planes and ships.
A growing global thirst for fuel, fading fears of a U.S. recession and last week's extension of Saudi and Russian cuts have propelled Brent crude above $90 a barrel. Higher gasoline prices accounted for more than half of August's 0.6% increase in U.S. goods and services prices from July, according to Labor Department data released Wednesday.
The prices of heavy fuels, which are more easily made from more-dense Russian and Middle Eastern crudes than U.S. shale oil, have risen even more than those of crude and gasoline.
Energy prices charged by suppliers rose about 11% in August, the Labor Department said Thursday. That included jumps in prices for gasoline, up 20%; jet fuel, which rose 23.6%; and diesel fuel, up 41.1%.
Jet fuel has risen the most, its price soaring more than 50% on the Gulf Coast since early May. Chinese demand has ballooned as Beijing has relaxed pandemic-era travel restrictions, pushing its August jet fuel consumption back toward its prepandemic level from below 60% a year earlier, according to analytics company Kayrros.
Delta Air Lines on Thursday warned of higher third-quarter fuel costs, following similar comments from American Airlines and Spirit Airlines earlier. The concern has been a headwind for airline stocks. The U.S. Global Jets exchange-traded fund has slid 19% since mid-July, while the S&P 500 is little changed.
Jet fuel prices might have further to run. Chinese international flight-fuel use is still 40% below its prepandemic level, according to Kayrros. Meanwhile, Asian refiners are still working to reverse Covid-era adjustments that reduced their jet fuel output, said Mukesh Sahdev, an analyst at consulting firm Rystad Energy.
A tight jet fuel market is buoying diesel and marine fuel prices, said Sahdev, since all three fuels derive from the same fraction of the oil barrel. Making a gallon more of one means a gallon less of another.
Other problems are constraining the world's capacity to make diesel, including delayed refinery startups in Africa and the Mideast and more refinery outages in the U.S. than normal.
European refiners have struggled to make enough of the trucking fuel from a diet more weighted toward light U.S. crudes ever since Western sanctions weaned them off Russian varieties.
The price of diesel at the pump has risen 49 cents a gallon since July, according to AAA, compared with 10 cents a gallon for gasoline." [1]
It is only a matter of time before the leaders of the Western countries who have imposed sanctions receive severe punishment from the voters for destroying the world economy and environment.
1. U.S. News: Building, Transport Sectors Feel Pain of OPEC's Cuts. Henderson, Bob.
Wall Street Journal, Eastern edition; New York, N.Y.. 15 Sep 2023: A.2.
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