November 26, 2022

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Why is there a global diesel shortage and how it might affect you |  Globalism

Why is there a global diesel shortage and how it might affect you | Globalism

The rise in the price of gasoline, as a result of the Russian invasion of Ukraine, has raised worldwide concern and exacerbates the problem of inflation that affects many economies on the planet.

But another oil-based fuel is becoming more expensive – in June it hit an all-time high – and it is causing more headaches than gasoline.

This is diesel oil.

At the end of May, the average price of a liter of regular diesel oil was approximately R$7, The highest value recorded in the historical series of the National Agency for Petroleum, Natural Gas and Biofuels (ANP).

This caused great discontent among truck drivers, who are critical of the pricing policy of Petrobras.

On Wednesday (15/6), the full House of Representatives again approved the bill limiting the collection of ICMS (Commodity and Services Tax) on fuel to 17%. The proposal was already approved on Tuesday night, but had to be redrafted after the public commission presented technical problems. The text also limits the tax on electricity, public transport and communications.

Since the bill was already approved Monday in the Senate, it will now be subject to impeachment by President Jair Bolsonaro (PL), the motion’s defender.

However, specialists heard by BBC News Brasil claim that there is no guarantee that this measure can, in fact, lower fuel prices.

What is even more worrying is that the rise in the price of diesel oil is due to the fact that there is a global shortage of this fuel, something they assert will not be reversed in the short term.

And the effects of this affect everyone’s pocket, even if your car isn’t diesel.

Queues for diesel fuel in Colombo, Sri Lanka, one of the affected places – Photo: BBC/Reuters

Because diesel oil is the fuel most freight cars use, from the trucks that transport our food and medicine and even the gasoline we fill at gas stations, to the ships that transport goods around the world.

It is also what many buses and trains use.

This is the fuel that many industries depend on to power their machinery – and agricultural producers need to operate their tractors and be able to sow and harvest.

Therefore, diesel shortages are causing serious problems around the world, which threaten to spread if demand continues to outstrip supply.

The shortage of this fuel causes transportation problems in places as scattered as Sri Lanka, Yemen and many African countries.

In addition to Brazil, the increase in diesel prices also led to protests from indigenous and peasant communities in Ecuador.

Another region where the crisis has caused great concern is Europe.

This is because – unlike in many other parts of the world – On the Old Continent, many drivers of private cars use diesel, as it is a more efficient and less polluting source of energy than gasoline.

Before the war in Ukraine, Europe imported about two-thirds of refined crude oil for diesel production from Russia.

But after the economic sanctions imposed by the West on Moscow, Europe has become dependent on the United States for much of this fuel.

While this avoided shortages, the impact on pockets was noticeable, with record prices on both sides of the Atlantic.

While Brits today pay more than £100 ($125) to fill up their car – a value of $2.30 a liter – US truck drivers pay $1.50 a liter, the highest ever recorded in that country.

The increase in diesel is affecting freight transport in the US – Image: BBC/Getty Images

Fortune magazine reported in mid-May that “price increases are so high in some states that truck drivers have to pay out of their own pockets to transport goods, and many are becoming more selective in the trips they take.”

“Some small trucking companies are struggling to pay wages and are considering reducing or even closing operations due to rising costs.”

For its part, the Wall Street Journal notes that “costs particularly affect the smaller truck fleets that make up the bulk of the highly fragmented US truck market.”

At the other end of the American continent, diesel shortages have also caused chaos in Brazil’s neighbours.

On the roads in central and northern Argentina, there are long lines of trucks waiting to be filled with this fuel, the sale of which in many places has been limited to 20 liters per vehicle (a small part of the tank).

19 out of Argentina’s 23 provinces have supply problems, according to a study conducted by the Argentine Federation of Cargo Transport Business Entities (Fadeeac) in early June.

“The diesel shortage threatens to damage one of the most important moments for the weak Argentine economy: the harvest and the planting of grains and oilseeds, such as soybeans, corn and sunflowers, which are the country’s largest export commodities,” says Veronica Smenk, a BBC News Mundo service. BBC News in Spanish, in Buenos Aires, the Argentine capital.

Smink explains that diesel shortages have worsened in Argentina because local factors have increased supply shortages worldwide, further complicating the situation.

Diesel oil is essential for harvesting and sowing in Argentina – Image: BBC/GETTY IMAGES

“Almost a third of the diesel consumed in the country is imported and the oil companies are not only facing more difficulty in obtaining (fuel) due to the effects of the war in Ukraine, but also importing it at current prices is not profitable for them due to the low domestic prices imposed by the government,” he said.

But the Russian invasion is not the only reason behind the diesel shortage.

Even before Vladimir Putin ordered a Russian offensive at the end of February, global demand for diesel was already outstripping supply.

According to experts, the main reason for the mismatch was the coronavirus pandemic.

The economic shutdown caused by the quarantines of 2019 and 2020 has reduced fuel use, prompting refineries to cut diesel production.

Some have even closed their doors permanently and others have decided to switch to renewable fuel refining as part of the energy sector’s shift to cleaner and greener sources.

With the world reopening, starting in 2021, demand for diesel has rapidly outnumbered supply.

Venezuela was one of the first places to suffer from a diesel shortage – Photo: BBC/Reuters

In addition, there was a rapid resumption of commercial flights, since jet fuel is made from the same amount of crude oil as diesel.

Reuters market analyst John Kemp warned that this increase in demand has led many countries in North America, Europe and Asia to deplete many of their diesel stocks.

He noted that stocks in Europe and the United States fell to their lowest levels since the 2008 financial crisis.

A US government official told reporters in late May that US President Joe Biden was discussing the possibility of using an emergency stockpile of diesel, which was built in the Northeast more than two decades ago and so far only used once. to mitigate the effects. from Hurricane Sandy in 2012.

The goal is to increase the supply of fuel to lower prices, which contributed to the United States recording its highest inflation rate in four decades, which may distort the performance of the ruling Democratic Party in the parliamentary elections in November.

However, analysts warn that the effects of the release of the emergency reserve in the Northeast will be limited, as the millions of barrels of diesel dumped on the market will not be enough to affect prices.

For Kemp, the global diesel shortage “harms an impending economic slowdown”.

“The global diesel shortage suggests that the economic cycle has peaked and a period of slow growth or even stagnation is imminent to bring consumption back into production,” he says.

The World Bank’s latest economic report, presented this week, confirmed that the world is experiencing a “sharp slowdown in growth”, and warns that this could lead to “stagflation”, a combination of low economic growth and high inflation.

“For many countries, it will be difficult to avoid a recession,” World Bank President David Malpass said at the report’s launch on June 7.

The World Bank estimates that global economic growth in 2022 will be 2.9%, about half of what it reached in 2021 (5.7%). For Brazil, the forecast is for 1.5% growth.

For its part, the Organization for Economic Co-operation and Development (OECD) lowered its forecast for global economic growth for this year from 4.5% to 3%, estimating that in its 37 member states there will be an average annual inflation of 8 5%.