Rising Diesel Prices Being Felt By Contractors

Gas prices have been on upward trajectory most of the year,

Source : Unsplash

December 7, 2022

Author : Patty Allen

Gas prices have been in the news since they skyrocketed in the first half of the year. The national average reached $5 per gallon in June. Prices in some areas of the country exceeded $6 per gallon.

According to research from Levelset, a New Orleans-based construction software business, rising diesel costs have pressured contractors, raising claims, defaults, and project expenses. Since the start of the COVID-19 outbreak, diesel prices have seen a 237% spike between April 2020 and February 2022. The average price of a gallon of gasoline is influenced by global, national, and local events.

The gas price directly impacts all commodities like steel mill products, wood, copper, and other necessities. The rising cost of diesel fuel affects everyone because trucks and ships rely on it to power their fleets. Much of the heavy construction equipment run on diesel gas. 

The worst impacted industry has been the construction sector, as 98% of all energy used in the construction industry comes from diesel.

Given the possibility of additional supply chain interruptions, weakening economic growth, high inflation, and rising interest rates, the prices will likely continue close to their present high rates. 

Gas is subject to the feather theory. The price increases rapidly, but it takes some time for the price to return to its previously established level. This means that the daily price of gasoline remains higher for longer and is more sensitive to subsequent price hikes in the event of a negative outcome.

After the pandemic, the ongoing Russia-Ukraine conflict was one major cause of diesel price hikes. Russia has major oil reserves, and since the war, many European countries have been looking for an alternative source to meet their fuel demands, leading to more demand and an increase in prices. Contractor News has previously reported how the war had impacted steel prices in the UK.

OPEC reduced its output by two million barrels per day in October 2022, citing a worsening global economy caused by rising interest rates. This news further increased the oil price.

Some U.S. refineries were down for maintenance in October, triggering an increase in oil prices. In certain instances, the maintenance required the completion of routinely scheduled tasks. In other instances, though, refineries were damaged and required repair.

The switch from summer mix fuel to winter blend fuel temporarily shut down refineries, exacerbating the problem.

According to Michael Hardman, vice president of Turner & Townsend, a U.K.-based global real estate and infrastructure consultancy, the year-over-year price increase in 2022 will remain between 9% and 12%. At the same time, rising inflation in the United States will exacerbate these challenges.

“When looking ahead into 2023, we are forecasting escalation year-on-year of 7%, with a return to the long-term average of 2.7% in 2024,” explained Hardman.

While gas prices have seen an upward trajectory for most of the year, the recent release of 165 million barrels of reserve petroleum by the Biden government has helped bring down the cost significantly. 

Category : Contractor Trades International Market Watch Material Costs Monopolization

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