Oil Freight Costs Jump 258 Percent in Two Months
Shipping expenses for crude oil surged to record highs as conflict forces tankers onto longer routes, driving diesel prices to $6.51 per gallon.
Key points
- Crude oil shipping costs increased by 258 percent in two months, rising from $6.50 to $23.59 per barrel.
- U.S. diesel prices reached a record $6.51 per gallon as transportation consumes 80 percent of the fuel supply.
- Higher freight costs create persistent inflationary pressure that may force the Federal Reserve to consider further rate hikes.
The cost to ship crude oil rose from $6.50 to $23.59 per barrel in two months. This 258 percent increase stems from geopolitical disruptions that force tankers onto longer and costlier routes.
Diesel prices hit a record $6.51 per gallon as a result. Since transportation consumes 80 percent of U.S. diesel, these higher costs now filter into the price of virtually every consumer good.
Tanker rates hit record highs
Data from European analyst Karel Mercx shows shipping costs for 2 million barrels from West Africa to China reached $20.41 per barrel last week. The Kobeissi Letter reported the price hit $23.59 by Saturday.
Reuters notes that VLCC rates from the Gulf of Oman to China reached roughly $11.50 per barrel. This represents a record level for the route as security risks disrupt tanker availability.
Diesel costs drive broad inflation
The U.S. Energy Information Administration reported a national diesel average of $6.285 per gallon for the week ended September 14. AAA subsequently put the national price at a record $6.51 on September 21.
Diesel powers trucks, trains, and farm machinery across the economy. Higher costs for this fuel mean increased expenses for moving groceries, clothes, and industrial components to market.
Fed may face persistent pressure
This shipping spike signals re-inflation that the Federal Reserve cannot ignore. It potentially triggers further rate hikes even if crude oil prices eventually fall.
Refinery disruptions and limited transportation capacity can keep refined-fuel prices elevated after the underlying commodity begins falling. This pressure squeezes transportation and industrial margins before filtering into consumer prices.
