US diesel prices reached an all-time high in March 2022 and have been increasing rapidly since. Diesel prices can impact all kinds of goods, services, and sectors in the economy, especially farmers, in many ways. An increase in fuel prices can make transportation more expensive since fuel is an important resource in transporting goods from one place to another. Analysts say that the hike in diesel prices is historic and affects all kinds of goods in the market available to the customers.
Russia is one of the largest producers of oil and their invasion into Ukraine led to many disruptions and restrictions to the supply of fuel. This directly pushes farmers into a difficult state across the world as diesel is required for numerous farming equipment. The equipment will not function efficiently if there is a scarcity of fuel. It also affects the transportation of products, hampering their source of income. As a result, the world will see a hike in food prices, rate of inflation would increase, people will encounter food shortages and an increase in poverty will pose greater problems.
The national average price of diesel currently is $5.15 per gallon. According to the data, no state has yet recorded diesel prices below $5.12 per gallon. Rise in the prices of gasoline and diesel are setting new records almost every day which is causing a burden on the Agricultural sector of the economy in particular. Supply and demand play a significant role in setting the prices of oil. There are more factors which are responsible for the hike in the prices of diesel. Crude oil, gasoline, and diesel are amongst the most demanding commodities now, more so because of a shortage in domestic supplies.
According to the USDA cost of production data, it is estimated that the combined cost of fuel, lube, and electricity is likely to increase by 34% in 2022 as compared to 2021. It is going to become more expensive for the farmers and will also impact other commodities. It is observed that farmers are not earning much profit and are at the breakeven point as their expenditure has now increased. Due to rising fuel prices, farmers are not making enough revenue to cover their total cost of production. It is also affecting the transportation businesses as soaring petrol and diesel prices have increased the cost of transportation. People are now required to pay almost double to cover the same distance as before. Due to this, there is also a hike in the prices of goods and services available to the consumers.
Crude oil prices are the main reason for the increase in the cost of diesel, which continues to rise because of tight supplies. The oil refineries of the world incurred heavy financial losses during the COVID-19 pandemic after witnessing a wave of shutdowns. These refineries are now struggling to meet the post-pandemic fuel demand across the globe. This explains the reason behind a sudden surge in prices.
To tackle the situation and reduce the burden on the people, the government needs to provide further subsidies and take necessary actions to increase the supply of crude oil. This will lower the impact across all the sectors of the economy. To further limit the impact, domestic crude oil producing companies need to increase the supply while the refineries maintain an environment which promotes and promises the capacity to make deliveries on time.