Why is there a worldwide shortage of diesel and how it can affect you

Lack of this fuel, distilled from crude oil, has caused its price to soar to record levels and threatens to slow down different sectors of the economy, from industry and freight transport to agriculture.

The rise in the price of gasoline, as a result of the Russian invasion of Ukraine, has raised concern around the world and is deepening the inflationary problem that affects several economies on the planet.

But there’s another oil-derived fuel that has gotten even more expensive — in June it hit its all-time high — and it’s causing even more headaches than gasoline.

This is diesel oil.

At the end of May, the average price of a liter of common diesel oil reached almost R$ 7, the highest value recorded in the historical series of the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

This caused great dissatisfaction among truck drivers, who criticize Petrobras’ pricing policy.

This Friday (17/06), Petrobras announced new highs, valid from Saturday (18/06), in the prices of gasoline (increase of 5.18%) and diesel (increase of 14.26%). sold to distributors. As a result, the average sale price of gasoline to distributors will rise from R$3.86 to R$4.06 per liter. For diesel, Petrobras’ average sales price to distributors will rise from R$4.91 to R$5.61 per liter.

The amount charged at the pumps depends on taxes and the profit margins of distributors and dealers.

On Wednesday (15/6), the plenary of the Chamber of Deputies once again approved the bill that limits the collection of ICMS (Tax on Circulation of Goods and Services) on fuel to 17%. The proposal had already been approved on Tuesday night, but had to be redone after the plenary panel presented technical problems. The text also limits the tax for electricity, public transport and telecommunications.

As the bill had already been approved on Monday in the Senate, it will now go to the sanction of President Jair Bolsonaro (PL), defender of the proposal.

The government has been pressuring Petrobras to avoid raising the price of diesel oil – the state-owned company, on the other hand, recently warned about the risk of fuel shortages if there is no readjustment.

Specialists heard by BBC News Brasil, however, say that there is no guarantee that this measure can, in fact, reduce fuel prices.

What is most worrying is that the rise in the price of diesel oil is due to the fact that there is a global shortage of this fuel, something that, they assure, will hardly be reversed in the short term.

And the effects of that affect everyone’s pocketbook, even if your car isn’t diesel powered.

Queues for diesel fuel in Colombo, capital of Sri Lanka, one of the affected places.  - Reuters - Reuters

Queues for diesel fuel in Colombo, capital of Sri Lanka, one of the affected places.

Image: Reuters

Because?

Because diesel oil is the fuel used by most cargo vehicles, from the trucks that transport our food, medicines and even the gasoline that we fill up at gas stations, to the ships that transport goods around the world.

It’s also what many buses and trains use.

And it is this fuel that many industries depend on to power their machines – and that agricultural producers need to operate their tractors and be able to sow and harvest.

Therefore, the lack of diesel is causing serious problems around the world, which threaten to spread if demand continues to outstrip supply.

global crisis

The shortage of this fuel is causing mobility problems in places as dispersed as Sri Lanka, Yemen and several African countries.

In addition to Brazil, the increase in diesel prices has also generated protests from indigenous communities and peasants in Ecuador.

Another region where the crisis has caused enormous concern is Europe.

This is because – contrary to what happens in many other parts of the world – in the old continent many of the drivers of private cars use diesel, because it is a more efficient and less polluting source of energy than gasoline.

Before the war in Ukraine, Europe imported about two-thirds of the crude oil it refined to produce diesel from Russia.

But after the economic sanctions imposed on Moscow by the West, Europe came to depend on the United States for much of that fuel.

While this avoided shortages, the impact on pockets was noticeable, with record prices on both sides of the Atlantic.

While Brits today pay more than 100 pounds ($125) to fill up their car – worth about $2.30 a liter – truck drivers in the US pay $1.50 a liter, highest value ever recorded in that country.

Rising diesel fuel is affecting freight transport in the United States.  - Getty Images - Getty Images

Rising diesel fuel is affecting freight transport in the United States.

Image: Getty Images

“Price increases are so high in some states that truck drivers are having to pay out-of-pocket to transport goods, and many are being more selective about the trips they take,” Fortune magazine reported in mid-May.

“Some smaller trucking companies are struggling to pay wages and are considering reducing or even closing operations due to high costs.”

For its part, the Wall Street Journal noted that “costs are particularly affecting the smaller truck fleets that make up the bulk of the highly fragmented US truck market.”

shortage in Argentina

At the other end of the American continent, the shortage of diesel is also causing chaos in Brazil’s neighbors.

On routes in central and northern Argentina, there are long lines of trucks waiting to fill up with this fuel, the sale of which has been limited in many places to 20 liters per vehicle (a small fraction of the tank).

Nineteen of Argentina’s 23 provinces have supply problems, according to a study carried out in early June by the Argentine Federation of Cargo Transport Business Entities (Fadeeac).

“The lack of diesel threatens to harm one of the most important moments for Argentina’s weakened economy: the harvest and subsequent planting of grains and oilseeds, such as soy, corn and sunflower, which are the country’s biggest export goods”, says Veronica Smink, correspondent for BBC News Mundo, the BBC’s Spanish-language news service, in Buenos Aires, the Argentine capital.

Smink explains that the lack of diesel has worsened in Argentina because local factors added to the shortage of supply around the world, which further complicated the situation.

Diesel oil is essential for harvesting and sowing in Argentina.  - Getty Images - Getty Images

Diesel oil is essential for harvesting and sowing in Argentina.

Image: Getty Images

“Almost a third of the diesel consumed in the country is imported and the oil companies not only have more difficulty in obtaining (the fuel) due to the effects of the war in Ukraine, but also importing it at current prices is not profitable for them, due to to the low local prices imposed by the government”, he says.

Causes of the crisis

But the Russian invasion is not the only reason diesel is lacking.

Even before Vladimir Putin ordered the Russian offensive at the end of February, world demand for diesel was already outstripping supply.

The main reason for this mismatch, according to experts, was the coronavirus pandemic.

The economic shutdown caused by the 2019 and 2020 quarantines caused fuel use to plummet, prompting refiners to reduce their diesel production.

Some have even closed their doors permanently and others have decided to convert to refine renewable fuels as part of the energy sector’s transition to cleaner, greener sources.

As the world reopened, starting in 2021, demand for diesel quickly outstripped supply.

Venezuela was one of the first places to suffer from a lack of diesel.  - Reuters - Reuters

Venezuela was one of the first places to suffer from a lack of diesel.

Image: Reuters

In addition, there has been a rapid resumption of commercial flights, as jet fuel is made from the same amount of crude oil as diesel.

Reuters market analyst John Kemp has warned that this surge in demand has led many countries in North America, Europe and Asia to deplete much of their diesel inventories.

In Europe and the US, equities fell to their lowest levels since the 2008 financial crisis, he notes.

A US government official told reporters in late May that US President Joe Biden is discussing the possibility of using an emergency stockpile of diesel, created in the northeast of the country more than two decades ago, and so far only used once. to alleviate the effects of Hurricane Sandy in 2012.

The objective would be to increase the supply of fuels to lower prices, which contributed to the US registering its highest inflation in four decades, something that could tarnish the performance of the ruling Democratic Party in the parliamentary elections in November.

However, analysts warn that the effects of releasing the Northeast’s emergency reserve will be limited, as the millions of barrels of diesel dumped on the market would not be enough to impact prices.

economic impact

For Kemp, the global shortage of diesel “heralds an imminent economic slowdown”.

“Global diesel shortages indicate that the economic cycle is reaching its peak and that a period of slower growth or even recession is imminent to bring consumption back into production,” he says.

The World Bank’s latest economic report, presented this week, confirms that the world is experiencing “a sharp slowdown in growth”, and warns that this could lead to “stagflation”, the combination of low economic growth and high inflation.

“For many countries it will be difficult to avoid recession”, says the American David Malpass, president of the World Bank, when launching the report on June 7.

The World Bank estimates that the growth of the world economy in 2022 will be 2.9%, about half of what it reached in 2021 (5.7%). For Brazil, the forecast is for growth of 1.5%.

For its part, the Organization for Economic Co-operation and Development (OECD) reduced its forecast of global economic growth for this year from 4.5% to 3%, and estimated that in its 37 member countries there will be an average annual inflation of 8, 5%.

‘This text was originally published at https://www.bbc.com/portuguese/internacional-61842567’

About Abhishek Pratap

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