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Tumbling Diesel Prices Signal Recession Warning
April 25, 2023
Diesel prices have fallen to the lowest level in more than a year amid falling demand for transportation and manufacturing, raising concerns about the slowing U.S. economy.
U.S. government data shows diesel demand in the first 10 weeks of the year is down 12.6% from the same period in 2022. Demand for the industrial fuel began to fall during the warmer-than-expected winter months, and has been further exacerbated by slowing factory output and weaker demand for trucking. Estimates from S&P Global Inc. project that demand is on track to contract 2% in 2023. Excluding 2020, when the pandemic brought the economy to a halt, this downturn would be the most significant drop in U.S. diesel use since 2016.
This tweaking demand has sent prices plunging. The Wall Street Journal reports that wholesale diesel prices in New York Harbor have plummeted to $2.65 per gallon from the recent peak of $5.34 per gallon last May. Benchmark diesel futures have fallen nearly 25% this year.
Much of the pullback in demand is due to a slowdown in the trucking industry, which accounts for more than 70% of America’s diesel usage. Some analysts have already identified a “freight recession” in the industry. The American Trucking Association’s for-hire contract truck tonnage index slipped to 95.8 in March, down from 101.3 the month prior. That is the lowest level since August 2021.
U.S. container imports, a bellwether for diesel use from the trucks and trains that transport imported goods, are also down significantly. In Los Angeles, inbound shipments are at their lowest level since March 2020.
