The column below reflects the views of the author, and these opinions are neither endorsed nor supported by WisOpinion.com.
MADISON, Wis. – The federal government’s latest inflation report showed the largest monthly increase in five months, with energy costs leading the way. Pushing the energy “pain meter” was the cost of diesel fuel, which powers three-quarters of the U.S. commercial trucking fleet and accounts for more than 40% of all energy used on farms.
High diesel costs stand out like a Freightliner in the drive-through lane at a fast-food restaurant. The roughly 75% rise in pump prices since January is hurting Wisconsin’s economy, from its farm fields to its trucking firms to what you pay for groceries and other goods.
Even if President Trump’s deal to lift sanctions on Russian diesel exports stands up in a skeptical Congress, it’s only a few gallons of relief in a huge tank.
“My take is the diesel volumes announced under the Russia deal are probably not large enough to create a long-term reduction in diesel prices,” said Dan Johnson, president of the Wisconsin Motor Carrier Association. “The total volume equates to only about 10 days of U.S. diesel demand, which may only create a modest wholesale price relief.”
The Russian deal is contingent on a refinery ceasefire in its war with Ukraine, which has used drone strikes to reduce the output of refineries inside Russia. A bipartisan group of U.S. senators have called it “a gift to our adversary and a betrayal of our allies.”
Johnson said association members haven’t communicated with him about the geopolitics of the deal one way or the other. However, he noted “there could be some unease” among carriers about easing sanctions and providing “revenue to Russia while the war in Ukraine continues.”
One Wisconsin trucking executive agreed price relief from deal would “just be a blip,” in part because much fuel used in the Midwest comes through Canada, which has crude oil refineries that can produce diesel.
“… This is more political showmanship than a meaningful, real long-term solution,” said Nancy Jourdan, chief executive officer for BCP Transportation in Deerfield. “At best it may provide a few days to a week of temporary relief. The administration hammered European countries publicly last year for buying oil from Russia, arguing those purchases were helping fund Russia’s war against Ukraine.”
Jourdan also noted she has “questions on how much oil and refined fuel the U.S. is still exporting,” which likely affects supply and costs at home.
The U.S. Energy Information Administration has reported that American refineries are operating at roughly 97% of capacity and that exports of diesel and related fuels have grown by about 28% over last year. Meanwhile, U.S. inventories of such fuels have fallen.
That has led to proposals by some elected officials and others to ban U.S. diesel exports until the current price crisis ends.
Another contributing factor is the cost of building new refineries that produce diesel and other fuels. The U.S. Energy Information Administration has reported the last new major refinery was built in Louisiana in 1977. However, other major full-scale refineries have been upgraded since then.
Owners of such refineries don’t want to invest the billions of dollars needed to open new facilities unless they know demand for fossil fuels of all types will remain strong.
Small trucking firms (10 trucks or smaller) make up about 90% of American trucking companies. They were already dealing with a post-pandemic freight recession that crimped rates and forced some out of business.
Small farms are also feeling the pinch. The Eau Claire Leader Telegram reported Oct. 11 on a rally by farmers who feel caught between what they can earn from their products and what they pay for supplies such as diesel.
“The challenge (of diesel) prices is getting it paid for,” dairy farmer George Polzin was quoted as saying. “We’re selling our product for the same price (as) last year and the year before” while input costs have risen sharply.
Inflation has many fathers, from wars in Iran and Ukraine to other supply-and-demand triggers. Trump’s deal with Russia may only serve to call more unfavorable attention to a problem that may define the Nov. 3 elections.
Still is past president of the Wisconsin Technology Council. He is an adviser to Competitive Wisconsin Inc., a non-profit public policy group.
