As a diesel supply crisis hits the US and builds in Europe, fuel prices in South Africa reached a record high this week, stoking inflationary pressures already weighing on critical industries and cash-strapped consumers.
This week, as a diesel shortage gripped the US economy with only 25 days of reserves – the lowest levels since 2008 – some suppliers are starting to scramble.
As reported by Bloomberg, a major US fuel supplier, Mansfield Energy wrote in a note to its clients that “conditions are rapidly devolving” and “at times carriers have to visit multiple terminals to find supply, which delays deliveries and strains local trucking capacity”.
The diesel supply shortage is also spreading across Europe, with demand increasing as winter sets in.
However, the immediate need in North America has seen some Europe-bound ships carrying diesel and jet fuel rerouting to the US East Coast.
The crunch is stoking concerns that rising diesel prices could drive inflation even higher as trucking, farming and construction industries are hit with added costs.
In SA, prices are climbing too. Yesterday (Wednesday 2 November), the diesel price rose by R1,43 a litre, pushing the diesel price in Gauteng to a record high of R25,49 per litre. A year ago Gauteng’s diesel price stood at around R17,20 per litre.
Peter Morgan, director of the Liquid Fuels Wholesalers Association, said the diesel price trajectory is concerning.
Mining companies have already seen rising diesel and other input costs weighing on profits. The agricultural industry will also feel the weight of rising diesel prices as fuel accounts for 13% of planting costs, said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa.
“Fuel is a big component of the cost, and the guys are still at the start of the planting season. It does put a squeeze on profitability and puts financial strain on some [farmers],” he said.
Linda Giesecke, manager of global fuels at ESAI Energy, a market research and forecasting firm, said the diesel problem is intensifying. “While not a new factor, the EU ban on Russian diesel is edging ever closer,” he said. “Russian exports to Europe are reportedly lower this month, with the real shift coming ahead of the February ban.”
According to Matt Smith, a lead oil analyst at commodity markets intelligence company Kpler, the diesel market remains tight with winter looming and sanctions on Russia fast approaching.
“This tightness can be seen in low inventories in both Europe and the US,” he said. “While there is the added kicker in Europe as consumers look to pivot to using diesel this winter for power generation as natural gas prices remain elevated.”
