Diesel prices starting to settle down
Although diesel remains essential to truck fleet operations, the green energy movement is leading to new investments in biodiesel and renewable diesel. Photo: P&Q Staff
The larger benefits of green energy, however, are expected to be more medium than short term in nature. Industry watchers feel it will take three to five years before a significant growth in green diesel production assists the broader diesel market.
A larger concern is the effect green energy production may have on food availability – particularly soybeans.
“Currently, renewable diesel and biodiesel production consume roughly 35 percent of soybean oil production,” Lipow says. “And there is enough renewable diesel capacity coming online this year and next to increase demand for soybean oil by another 10 percent. We can certainly divert crops to fuel, but that gets us back into the debate about food for fuel.”
Another technology, electric vehicles, may also help loosen the diesel market.
“The growth of EVs may lessen the demand for gasoline,” Schaeffer says. “And that might lead refineries to adjust their output of finished products.”
Green energy initiatives aside, a deceleration in global economies may also help bolster diesel supply.
“We have been seeing a little bit of a slowdown on freight demand in the trucking sector,” Schaeffer says. “The economy and inflation seem to be taking a bit of a toll there, and that should allow some of the inventories to come back up a bit.”
Slowing economies
According to estimates from L.E.K. Consulting, fuel can account for up to 25 percent of a typical trucking operation’s operating costs. That can rise to 35 to 40 percent in a high fuel price environment.
It follows that the price moderation forecast for the coming months will come as welcome relief.
“We feel like we’ve hit the ceiling now and are just going to be settling down over the next six months,” Schaeffer says. “We’re going to be paying a higher rate for diesel than we’ve been accustomed to, but it won’t be as high as where we are now.”
Even so, uncertainties in the global operating environment mean the future of diesel availability and pricing will depend largely on the answers to some open questions. For example, how will the world deal with and recover from the Russia-Ukraine war? How will Europe handle the shock of a drop in oil supply? Will sanctions and tensions escalate, or will Russia experience an internal political shift and reach an accommodation?
“If you’re trying to predict what’s going to be happening in fuel markets, this is a particularly unusual time,”
Williams-Derry says. “It’s not just about supply and demand. It’s also about politics.” P&Q
Phillip M. Perry is an award-winning journalist who is published widely in the fields of business management, workplace psychology and employment law.
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