Debunking The Reasons Behind Diesel Price Hikes

Diesel price difference affects the construction and equipment industry with its full potential around the globe. Not only does it slow down the supply chain process but sometimes, affects the sales of equipment as well. The fluctuation in diesel prices is normal and it keeps affecting the economy in the world. It would not be an exaggeration to claim that diesel prices actually shape the economy of the state. However, managing the price hikes in the diesel and fuel industry is not rocket science once you understand the actual reason behind these fluctuations.

Global catastrophes might badly affect diesel prices

Every time, something bad happens around the globe, will definitely affect the diesel and fuel prices. Even though, mishaps in one region may also disrupt the prices in other regions as well. This happens due to the restricted supply of fuel that ushes the high demand and low supply. This ultimately causes a hike in prices.

One such example is the conflict between the Ukraine and Russia. The third-largest oil producer in the world, Russia, invaded Ukraine, severely upsetting the world’s energy markets. Russia plays a vital role in global oil production, accounting for 11% of total production. The situation got worse when Russia faced further sanctions to export the oil. This made several nations look for alternatives.

On the other hand, due to low fuel costs and other economic issues, energy producers had already reduced their investments before the COVID-19 epidemic. The epidemic caused worldwide economies to shut down, which further decreased fuel output and resulted in a sharp decline in the amount of fuel used by consumers and businesses. The need for gasoline increased as economies started to recover, but producers were unable to meet the demand, which tightened the oil market and raised prices.

Fuel fracking operations in North America

Fuel fracking is actually the scratching of the surfaces to extract the oil and fuel. The amount extracted from this process might also affect the prices. Due to low fuel costs prior to the epidemic, the North American fracking sector, which depends on high oil prices for profitability, encountered difficulties. Resuming fracking operations is a time-consuming procedure, made more difficult by a scarcity of resources, even though increased oil prices have made the practice feasible once more.

Release of reserves strategically

The International Energy Agency declared the release of 61.7 million barrels of crude oil from strategic reserves in reaction to increased prices. The majority of these barrels came from US sources. However, it was a very tiny amount in comparison to daily oil flows from Russia, this action had minimal impact on prices.

In a similar vein, there was little price reduction from the Biden administration’s proposal to release diesel fuel from federal heating oil stocks. The decline in the price has also boosted heavy equipment sales. Several companies have found this opportunity to be groundbreaking and get enough revenue by selling excavators, road rollers, and motor graders for sale. Furthermore, the fuel prices not only affect the oil industry but also the other industries that depend on fuel such as the automobile, heavy equipment and construction.

You can find the details on the equipment market stats regarding heavy equipment sales and the fiscal performance of different equipment brands in our report.

What initiative has been taken to regulate the global oil supply?

The United States has eased some sanctions against Venezuela to address the petroleum supply problems, and it has asked OPEC members to raise their monthly production. Supplies are still scarce despite these initiatives, especially as the European Union is trying to impose a 90% ban on Russian oil imports. As a result, experts do not anticipate a large decline in oil prices anytime soon.

Low production and high taxes affect diesel price rise

The restricted capacity for refining diesel is a major factor driving rising pricing for the fuel. Six refineries closed during the epidemic, resulting in a 4.5% decrease in U.S. refining capacity. Fuel prices rose as a result of a loss in supply due to rising demand. More capacity is unlikely to be added very soon due to the financial, environmental, and political difficulties involved in building new refineries.

Fuel prices are also influenced by state and federal levies. On-highway diesel fuel is subject to a federal excise tax of 24.4 cents per gallon, which is 6.4 cents more than the gasoline tax. These taxes are not only applicable to the end users but to the export sector as well. This also restricts the clients and big companies to limit their purchases. In this matter, President Biden has proposed a three-month federal fuel tax holiday to reduce the costs of the fuel.

Wrap Up

Rising diesel costs are the result of a combination of pre-existing economic issues, the pandemic’s effects, geopolitical tensions, and restricted refining capacity. Even if these problems are being worked on, it is obvious that high fuel costs will probably continue for some time to come. As consumers and industry manage the challenges ahead, they must understand the complex causes of these price rises.

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