Diesel Prices Predicted to Remain High for At Least Another Year

Kansas State University agricultural economist Gregg Ibendahl predicts that diesel fuel prices will remain high for at least another year. The current price of diesel is about $2.25 per gallon higher than it was earlier this year, and Ibendahl says the main driver of this increase is a global shortage of diesel fuel.

The global supply of diesel has tightened sharply due to geopolitical disruptions, including damage to Russian refineries during its war with Ukraine and curtailed flows through key shipping routes such as the Gulf region and the Strait of Hormuz. Ibendahl notes that Russia is still producing oil but can't get it refined easily because of the damaged refineries.

The high fuel costs are squeezing farmers, who cannot pass on these increased expenses directly to consumers. In a typical grain budget for north central Kansas, Ibendahl estimates that farmers might plan on using about four gallons of diesel per acre to grow corn, with an added $10 per acre in fuel costs alone. For many operations, this can be the difference between having a profitable year and not making anything at all.

Ibendahl also expects higher diesel prices to eventually impact consumers, as most goods are transported by truck, which runs on diesel. While major retailers may be able to absorb some of the shock initially, they cannot do so indefinitely, and Ibendahl predicts that consumers will feel the effects of higher diesel prices in the long run.