Invest1 publisher3 min readPublished
Record pump prices are running $255bn a year above last year's US fuel bill
GasBuddy has California's diesel average at $7.91 a gallon and the national average past $6 for the first time. The extra $700m a day Americans are paying for fuel works out near $255bn over a year.
The Investor · Invest desk
What happened
- GasBuddy reported on Thursday that California's statewide diesel average had reached $7.91 a gallon.
- The national U.S. diesel average passed $6 a gallon this week for the first time, and GasBuddy's Patrick De Haan said $7 is realistic in the weeks ahead.
- A handful of California stations pushed diesel to the $9.999 display maximum, confirmed at pumps in the San Diego suburb of Serra Mesa on Wednesday, with other reports being checked.
- OPEC put Saudi Arabia's August production at 6.2 million barrels a day, its lowest since 1990, against 10 million before the war, as Houthi attacks disrupted Red Sea volumes.
- Oil is being drawn from strategic reserves worldwide and the U.S. Strategic Petroleum Reserve is now at 44-year lows.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- cost Diesel is what the harvest runs on and the agricultural season typically starts in September, so growers buy the record price in the field and try to pass it into food prices afterwards.
- constraint There is no strategic reserve of refined fuel to open, so short of a truce in the Strait of Hormuz the only lever left is a price high enough to make someone drive or ship less, which is Susan Bell's point.
- exposure If the daily gap reaches the $1bn De Haan said would not surprise him, the annual bill is about $365bn, and freight buyers meet it before shelf prices show it.
- precedent Pump displays stop at four digits, so a station facing $10 diesel needs a software change to move the decimal or a switch to half-gallon pricing, and De Haan said the legality of either is unresolved.
Gasoline and diesel sit inside the same daily figure and they do not behave the same way. Gasoline averaged $4.27 a gallon on Sept 10, the highest September price on record [12], and households absorb that by buying less of something else. Diesel is an input. It arrives in freight rates, and from there in the price of anything hauled. De Haan said it would trickle down the inflationary supply chain in the weeks ahead [19]. Gasoline is painful, he said, "but diesel is really going to be the troublesome child" [22].
GasBuddy puts the extra spend at more than $700m a day against last year [20]. Twelve months at that rate is about $255bn [1]. The figure is gasoline and diesel together, and Fortune's account does not break it out, so how much of the $255bn is freight is not on the record.
Crude is the number that gets quoted, and it moved: the global benchmark rose almost 8 per cent on Sept 10, from $101 to $109, its highest since May [11]. OPEC put Saudi Arabia's August output at 6.2m barrels a day, 3.8m below the 10m it pumped before the war, a cut of 38 per cent [13][5]. Houthi attacks escalated this week, including strikes aimed at Saudi oil pipelines [14]. What the account does not carry is the product side: no distillate inventories, no refining margins.
California is where the retail arithmetic gets odd. The state average of $7.91 [2] is about $1.91 above a national average only known to have crossed $6 [1], so a 32 per cent premium is the smallest it can be [3]. The maxed-out displays sit another $2.09 above California's own average [4]. Several stations there are pricing above $9 outright [5].
Susan Bell, senior vice president at Rystad Energy, named the mechanism that works without diplomacy. "I hate to say it, but we need prices at the pump to go up higher to encourage consumers to make choices on their energy consumption. We need more (global) austerity measures," Bell told Fortune [25]. The price that hurts is also the price that cuts consumption, so the straight-line path higher assumes demand that does not flinch.
Two other routes out. Trump said this week that he is resigned to the Iran war running at least into November, though he argued it will be solved shortly after the midterm elections [23], and a truce at the Strait of Hormuz, effectively closed again [15], reprices the curve in days. Or the retail distribution is thinner at the top than the photographed pumps suggest, in which case $9.999 mostly signals an empty tank, which De Haan cautioned is how some stations warn drivers off when diesel has run dry [4].
My read matches Dan Pickering's, who said diesel costs are more concerning right now than oil above $100 [26]. It is wrong if distillate stocks turn out comfortable and the retail spike is a distribution problem, and this material does not settle that either way.
What to watch
- Whether the national diesel average tracks De Haan's $7 call or stalls as demand destruction bites.
- Whether any regulator rules on moving the pump decimal or half-gallon pricing before a station needs it.
- Distillate inventory and refining margin data, absent from this account, would show whether the product market is tighter than crude.