Khaberni - Jordanian economic researcher and oil and energy specialist Amer Al-Shoubaki warned that the decline in crude oil prices in global markets does not necessarily mean a decline in the prices of goods and services, indicating that the diesel crisis has become more complex than just a rise in the price of oil per barrel.
Al-Shoubaki said that wholesale diesel prices have reached record levels in key markets, with the average price at American stations today about 6.53 dollars per gallon, an increase of almost 77% over the year, according to figures from the American Automobile Association (AAA).
He explained that the average American diesel price reached 4.764 dollars per gallon when Brent contracts reached their all-time high during trading at 147.50 dollars per barrel in July 2008, while the average Brent price in 2012 was about 111.63 dollars per barrel, compared to 3.968 dollars per gallon for American diesel.
He pointed out that the current diesel price is nominally about 37% higher than its peak in July 2008, despite the decline of Brent below 100 dollars per barrel in today's trading, considering that this comparison reveals that the crude oil price alone no longer explains the fuel cost that the consumer pays.
Al-Shoubaki clarified that the roots of the crisis are also linked to the refineries' ability to process crude, regular tanker movements, and the availability and arrival times of shipments, noting a decrease in the quantities of oil processed in refineries globally in August by about 4.2 million barrels per day compared to the same month last year, according to a report by the International Energy Agency released in September.
He added that the difference between the diesel price and the crude price in Europe exceeded 100 dollars per barrel at the beginning of September, emphasizing that this difference does not represent a net profit for the refineries, but rather reflects the bottleneck between crude oil and ready-to-use fuel.
He mentioned the decline in Middle East diesel exports to an average of about 800,000 barrels per day during the period from March to August, according to Kepler data, which is about half its level during the same period of the previous year.
He said that the disruption of refining or loading operations in Saudi Arabia and Gulf countries exceeds the impact of the region, concurrently with the attacks on Russian refineries and the restrictions imposed on their exports, adding that Iran was also a source of petroleum derivatives, including diesel, despite the lack of sufficient data to isolate its contribution to the current deficit.
Al-Shoubaki pointed out that shipping difficulties increase pressures on markets, as a tanker that waits or takes a longer route transports fewer shipments during the same period, which increases pressure on supplies.
He explained that the danger of rising diesel prices lies in its cost being passed on to the consumer indirectly, even for those who do not purchase a single liter of it, as it is used in agriculture, harvesting, transportation, manufacturing, and power generation, as well as in hospitals and some industrial facilities, including phosphate, potash, and fertilizers.
He considered that diesel has become an important indicator of global inflationary pressures, with varying effects from one economy to another depending on taxes, subsidies, and economic structure.
Al-Shoubaki stated that a 50% increase in fuel prices, for example, can raise transportation costs by 15% if fuel constitutes 30% of transportation costs, before a portion of this increase is passed on to the prices of goods, which are in turn affected by production costs, energy, and various transportation stages.
Regarding social impacts, Al-Shoubaki said that countries with financial reserves and sovereign funds are able to absorb part of the shock, but owning money does not necessarily guarantee the timely arrival of fuel shipments.
He mentioned that the rising cost of providing fuel and electricity in Egypt increases pressures on the budget, while raising diesel prices reflects on agriculture, transportation, and food prices, while the rapid increase in mazut prices in Lebanon more quickly transfers to the cost of living due to households and facilities relying on generators.
He warned that the continuation of rising fuel prices with the governments' reduced ability to offer subsidies could increase social pressures, especially if the measures do not come with adequate social protection and clarity in fuel pricing mechanisms.
Al-Shoubaki affirmed that policies should not solely rely on waiting for crude oil prices to drop, as the price per barrel might decrease before refineries are fixed, navigation is regularized, and diesel inventories are rebuilt.
He suggested that diesel prices might remain high until the end of 2027 if refining and shipping bottlenecks continue and inventory recovery is delayed.
He urged governments to enhance reserves of ready oil derivatives alongside crude, diversify suppliers and import routes, and ensure fuel supplies for hospitals, agriculture, public transport, water desalination, and transport, in addition to providing targeted temporary support instead of open-ended support or passing sudden increases on to consumers.
He also called on institutions to improve energy usage efficiency and review supply contracts and emergency plans, and for governments to publish fuel costs before taxes and monitor their transfer to goods and services prices.
Al-Shoubaki concluded by warning that the next danger could be represented by the combination of rising energy costs with difficulties in obtaining it, noting that a decline in oil prices does not necessarily mean a decline in living costs, especially if refining, shipping, and supply bottlenecks continue.
