That an economic contraction was coming has been predictable since at least the second quarter of the year.
IMO, high diesel prices will lead to *some* demand destruction. Example: I own a couple of diesel vehicles as well as some gasoline powered ones. The diesel ones are bigger, but due to the greater efficiency of a diesel engine there's normally no fuel cost penalty to drive them. Now currently, with retail diesel prices ~50% higher than retail gas, there certainly is, so if I don't *need* one the bigger, diesel powered vehicle, I'll drive one of the gas ones instead. Is my personal diesel demand destruction negligible? Sure, but multiply this scenario by a few million guys who own diesel pickups, while their wives have gas powered cars, and it might just add up to something that matters. And demand did fall off quite a bit this spring right around the time when diesel prices really went through the roof:
It's more a question of what's the primary driver. High prices do lead to more efficient ways to accomplish various economic goals, and superficially, that would be demand destruction for diesel.
However, those choices are also stimulating demand for gasoline, by the selfsame logic.
When there is not evidence of a broad shift from diesel to gasoline, and still diesel prices and consumption are down, we need to look further for the source of the decline in diesel demand. With a drop in maritime shipping rates, the most probable source of the demand decline is an overall drop in demand for physical goods.
When the Captains of Industry, such as Dimon and Bezos, talk contraction, and the US government keeps telling us that the economy is strong, I worry the Fed will destroy demand, regardless if demand was already dying on its own.
In the case of diesel, no. Diesel production has shown slow but steady increase over the past two years.
If lack of crude sources was the driving factor, sustained underinvestment in crude production and distribution would show up as sustained but steady price increases in diesel. That is not what has transpired.
The surge and retreat of diesel prices is more indicative of a surge and decrease in diesel demand, and the most plausible proximate cause for that is a general decline in demand for physical goods--which also explains the drop in maritime shipping rates.
That an economic contraction was coming has been predictable since at least the second quarter of the year.
IMO, high diesel prices will lead to *some* demand destruction. Example: I own a couple of diesel vehicles as well as some gasoline powered ones. The diesel ones are bigger, but due to the greater efficiency of a diesel engine there's normally no fuel cost penalty to drive them. Now currently, with retail diesel prices ~50% higher than retail gas, there certainly is, so if I don't *need* one the bigger, diesel powered vehicle, I'll drive one of the gas ones instead. Is my personal diesel demand destruction negligible? Sure, but multiply this scenario by a few million guys who own diesel pickups, while their wives have gas powered cars, and it might just add up to something that matters. And demand did fall off quite a bit this spring right around the time when diesel prices really went through the roof:
https://www.eia.gov/petroleum/weekly/images/dispsusm.gif
It's more a question of what's the primary driver. High prices do lead to more efficient ways to accomplish various economic goals, and superficially, that would be demand destruction for diesel.
However, those choices are also stimulating demand for gasoline, by the selfsame logic.
When there is not evidence of a broad shift from diesel to gasoline, and still diesel prices and consumption are down, we need to look further for the source of the decline in diesel demand. With a drop in maritime shipping rates, the most probable source of the demand decline is an overall drop in demand for physical goods.
When the Captains of Industry, such as Dimon and Bezos, talk contraction, and the US government keeps telling us that the economy is strong, I worry the Fed will destroy demand, regardless if demand was already dying on its own.
"Captains of Industry" in every era are corrupt criminals who buy government favors to exclude otherwise capable competitors.
Whenever they start talking always make sure someone is counting the table silverware.
But isn’t the inflation in prices for goods somewhat of a reflection of shutting down oil pipelines and exploration?
In the case of diesel, no. Diesel production has shown slow but steady increase over the past two years.
If lack of crude sources was the driving factor, sustained underinvestment in crude production and distribution would show up as sustained but steady price increases in diesel. That is not what has transpired.
The surge and retreat of diesel prices is more indicative of a surge and decrease in diesel demand, and the most plausible proximate cause for that is a general decline in demand for physical goods--which also explains the drop in maritime shipping rates.