Like many businesses, Dietz & Watson Inc., the family-owned Philadelphia maker of deli meats and cheese, has faced rising costs and supply-chain challenges in the last year, including an outbreak of avian flu that has decimated supplies of poultry meat.
But a common thread connects the rising costs for both ingredients and products at Dietz & Watson’s manufacturing plant in Tacony: soaring energy prices, particularly the cost of diesel fuel, the workhorse of fossil fuels.
Diesel powers the tractors of farmers and the trucks of processors who make the raw materials for deli foods, as well as the fleet of 100 Dietz & Watson vehicles that deliver the food to stores.
Energy prices are up across the board in the last year, but since the Russian invasion of Ukraine, the price of diesel has accelerated much faster than the price of gasoline, creating eye-popping numbers posted outside the region’s gas stations and causing anxiety for owners of diesel equipment. The price of diesel affects just about everything -- every builder, every miner, every landscaper, every transporter of goods is reliant on diesel fuel.
ADVERTISEMENT
In January, a gallon of diesel cost about 11.5% more than a gallon of regular gasoline in Southeastern Pennsylvania, below the 18% average spread that separated the two prices in the last five years, according to AAA data. But last week, the regional price for diesel had risen to $6.50 a gallon, or 33% more than the average gasoline price of $4.89.
Diesel has been priced at such premiums to gasoline before -- in the winter of 2018-19, in 2015, and in 2008, when diesel was priced at more than 50% above gasoline prices. But in 2008, gasoline prices were plummeting after a market crash. Now both diesel and gasoline prices are at record heights.
“Diesel costs are over $6 -- like $6.25 today,” said Cindy Eni Yingling, the chief financial officer for Dietz & Watson. “And a year ago, they were $3.25.”
Diesel costs take a big bite out of Dietz & Watson, said Yingling’s brother, Louis Eni, the chief executive of the business founded in 1939 by their grandfather.
ADVERTISEMENT
“It would be difficult to calculate, but animal feed costs are up as well as diesel to run the tractors at the farm level and to deliver the meat,” he said. “Energy costs are up at the processing plants. Our logistics costs have gone up dramatically because of the cost of diesel fuel.”
The soaring price of diesel has created such a political headache for the Biden administration that last week it floated the idea of releasing fuel from the rarely used Northeast Home Heating Oil Reserve to provide some price relief -- heating oil is virtually the same as diesel.
But the heating oil reserve is small -- it contains only 1 million barrels of fuel, about a day’s supply in the Northeast. Most energy experts said a release would not significantly affect the market.
An association of small business owners said higher diesel costs will inevitably be passed along to consumers in the form of higher prices.
“The rise in diesel is crushing our members on shipping costs,” said Greg Moreland, the Pennsylvania director of the National Federation of Independent Business. “At every stage of transport, the costs have increased, if you can get the goods you need. When costs are incurred by the business, they pass those on to the customer, perpetuating the high inflation we are seeing right now.”
Indeed, Eni is already seeing signs that consumers are tightening their belts when it comes to Dietz & Watson products in response to rising prices and a reduction in disposable income.
“We can see the volume, the per-store visits are going down, and people are watching what they’re spending at the grocery store,” he said. “Families used to buy a pound of this, a pound of that, and a pound of cheese. Maybe they’ve cut that back to a half a pound or three-quarters of a pound. We see the sales volume has been decreasing.”
/cloudfront-us-east-1.images.arcpublishing.com/pmn/KHAFERQUY5EYDNRBFRLO2ODWL4.jpg)
Rising energy costs are a topic of passionate political finger-pointing -- some blame oil and gas producers for holding back production, while others blame policymakers for disincentivizing production with anti-fossil fuel rhetoric.
What’s indisputable is that energy markets went out of balance during the coronavirus pandemic, causing global consumption to plummet, prices to fall, and production to shrink. Consumption, prices, and production have rebounded as the global economy has rebounded, but demand is outpacing supply.
ADVERTISEMENT
The invasion of Ukraine by Russia, one of the world’s biggest oil and gas producers, has further unsettled global markets, particularly in Europe, which is dependent on Russian fossil fuel. European light vehicles including cars use more diesel than the American fleet. European demand for diesel also surges because electrical generators were using it as a substitute for Russian natural gas, whose price skyrocketed.
/cloudfront-us-east-1.images.arcpublishing.com/pmn/LELHHQPBQRBNNI3NRHPBZYHBJM.jpg)
Greater demand in Europe for diesel to replace Russian fuel has played a significant role in driving up diesel costs in the United States. The impact is greatest on Northeastern markets, which are more dependent on imported fuels after the closure of about half of the region’s refineries in the last decade, including the 2019 shutdown of the largest refinery in the Northeast, Philadelphia Energy Solutions.
PES production accounted for about 100,000 barrels per day of “distillates,” a category that includes diesel. Those fuels were replaced by imports, according to the U.S. Energy Information Administration (EIA). But in the last seven weeks, imports of distillates at East Coast ports have decreased to 76,000 barrels per day from an average of 227,000 barrels per day last year, according to EIA.
ADVERTISEMENT
Under the current market circumstances, diesel is likely to be in short supply for months or years unless regulatory policies controlling production are relaxed or an economic slowdown reduces demand, according to Philip Verleger, an energy economist in Denver. “In the short term, distillate prices will likely keep rising compared to other petroleum products,” Verleger wrote in a recent paper.
U.S. refineries are now running full tilt to meet demand for diesel fuel and jet fuel, said Tom Kloza, the global head of energy analysis for the Oil Price Information Service. Fuel manufacturers, which two years ago were losing money during the pandemic lockdown, are now enjoying huge profit margins for the fuels they produce, which generate a net $100 per barrel over the cost of crude oil, or nearly double.
“These are epic, epic numbers,” Kloza said. “I mean, there is no way in the world the refiners ever thought they could make $100 a barrel on any given day by making diesel.” Monroe Energy in Trainer, which has lost money for much of the decade since Delta Air Lines bought it, is now earning so much that, Kloza said, “they might as well have a counterfeiting machine there.”
There seems to be no end in sight. Stocks of diesel amount to about 103 million barrels, compared with normal storage of about 220 million barrels, he said. Exports of U.S. diesel to Latin America and Europe are at record amounts, ranging up to 1.5 million barrels a day.
ADVERTISEMENT
Some large corporate and institutional fleet owners have reduced the impact of soaring diesel prices by hedging their fuel purchases with purchases on futures markets, as the head of NJ Transit recently told New Jersey lawmakers.
A. Duie Pyle, the West Chester motor freight carrier, is able to pass along diesel price increases to its customers though fuel surcharges, which have become standard provisions in shipping-industry contracts after several episodes of dramatic price swings. The surcharges are based on regional government fuel-price indexes, which adjust weekly, said Peter Latta, chief executive of A. Duie Pyle. That virtually eliminates the risk of harm to the carrier from rising fuel prices.
More of a concern is that diesel will become increasingly hard to procure, no matter the price. A. Duie Pyle’s fleet consumes 61,000 gallons of diesel a day, and Latta is worried about reports that the nation’s current diesel supply is at its lowest point in 30 years. The company makes sure to keep a steady supply of tanker deliveries to top up its 508,000-gallon storage tank.
“We have been keeping our tank in West Chester full, not as a price hedge, but as a supply hedge,” Latta said.
Article From & Read More ( Why Philly diesel prices have soared, and probably won’t come down soon - The Philadelphia Inquirer )https://ift.tt/dqDHS5V
Business
Bagikan Berita Ini
0 Response to "Why Philly diesel prices have soared, and probably won’t come down soon - The Philadelphia Inquirer"
Post a Comment