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Price of Diesel, Which Powers the Economy, Is Still Climbing

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Russia’s invasion of Ukraine is one reason that the fuel is scarce. Another is a series of yearslong, intertwined events that cover the globe.HOUSTON — Gasoline prices have dropped as much as a dollar a gallon since early summer, easing a financial strain on many people. But the price of diesel, the fuel that moves trucks, trains, barges, tractors and construction equipment, has remained stubbornly high, helping to prop up the prices of many goods and services.On Wednesday, a gallon of diesel fuel in the United States cost $5.357 on average, according to AAA. That was down from a record of $5.816 in June but well above the $3.642 it cost a year ago. (A gallon of regular gasoline now averages $3.805.)The surge in diesel costs has not garnered the attention from politicians and the public that the jump in gasoline prices did, because most of the cars in the United States run on gas. But diesel prices are a critical source of pain for the economy because they affect the cost of practically every product.“The economic impact is insidious because everything moves across the country powered by diesel,” said Tom Kloza, the global head of energy analysis at the Oil Price Information Service. “It’s an inflation accelerant, and the consumer ultimately has to pay for it.”Sherri Garner Brumbaugh, the president of Garner Trucking in Findlay, Ohio, said the weekly cost of fueling one of her heavy-duty trucks in September was $1,300, more than double the $600 she paid two years earlier. “A good portion gets passed onto my customers with a fuel surcharge,” she said.Both gasoline and diesel prices are tied to the price of oil, which is set on the global market. The price of each fuel immediately shot up after Russia invaded Ukraine in February. But their paths have diverged sharply. Over the last year, the cost of diesel has ballooned by over 40 percent, compared with 11 percent for gasoline.Diesel prices are high because the fuel is scarce worldwide, including in the United States, which in recent years became a net exporter of oil and petroleum products. Oil analysts said there were simply not enough refineries to meet the demand for diesel, especially after Russia’s energy exports fell when the United States, Britain and some other countries stopped buying them.Diesel inventories are always a bit low in the spring and fall, during agricultural planting and harvesting seasons, but this fall supplies are at their lowest level since 1982, when the government began reporting data on the fuel.The tightest market is in the Northeast, where oil refineries have closed in recent years and where the diesel crunch is complicated by winter demand for heating oil. The two fuels are virtually the same but are taxed differently. An especially cold winter could make the situation worse by increasing the demand for heating oil.In Massachusetts, for example, diesel is selling for more than $5.90 a gallon (about $2.33 more than it did a year earlier). In Texas, it costs $4.73 a gallon.Trucks, trains, barges, tractors and construction equipment all use diesel, and its price affects the cost of practically every product.Jim Watson/Agence France-Presse — Getty ImagesWhile Russia’s war in Ukraine sent diesel prices soaring, the current situation is partly the result of an interconnected, slow-building series of events that extends across the globe. Some analysts trace the roots of the U.S. diesel shortage to a fire at Philadelphia Energy Solutions in 2019, which forced the refinery to shut down, taking out one of the Northeast’s important diesel producers.But refineries have been closing elsewhere. Over the last several years, 5 percent of U.S. refinery capacity, and 6 percent of European refinery capacity, has been shut down. A few refineries closed or scaled back because of the collapse in energy demand in the early months of the coronavirus pandemic. Some older refineries were shut down because they were inefficient and their profits weren’t large enough for Wall Street investors. Other refineries were closed so that their owners could convert them to produce biofuels, which are made from plants, waste and other organic material.“Because we shut those refineries down, we don’t have enough capacity,” said Sarah Emerson, the president of ESAI Energy, a consulting firm.As much of the global economy recovered in 2021 and 2022, demand for diesel climbed quickly. But then, after Russia invaded Ukraine, the Biden administration banned Russian oil and petroleum imports, which amounted to 700,000 barrels of diesel and other fuels a day, much of it intended for the Northeast.Diesel prices have also soared so much higher than the cost of gasoline in part because of a decision by the International Maritime Organization several years ago to require most oceangoing ships to replace their high-sulfur bunker fuel with less polluting fuels starting in 2020. That has slowly increased demand for diesel over the last two years.“A substantial amount of diesel is needed in the new bunker blends, and that is a hidden demand for diesel molecules,” said Richard Joswick, the head of global oil analysis for S&P Global Platts. He estimated that the global shipping fleet was now consuming half a million barrels of diesel a day, or roughly 2 percent of the world’s supplies.At the same time, while American refiners are now making tidy profits, 30 percent of their production is being exported. Latin America has become a particularly profitable market, as American diesel replaces fuel from Venezuela, where the state-controlled oil sector has been hobbled by corruption, mismanagement and U.S. sanctions. Some American diesel also goes to Europe.The impact of exports on domestic prices has led some analysts to speculate that the Biden administration could eventually restrict exports to boost supplies at home. But energy experts said that might not have the desired effect because diesel had become a globally traded commodity. Denying Latin America fuel could also backfire because many countries in the region sell crude oil to the United States.“We have a symbiotic relationship with Latin America on diesel and crude,” said Ms. Emerson of ESAI Energy. “We can disrupt that, but it doesn’t immediately fix the problem.”The global diesel shortage was also exacerbated by labor strikes at French refineries this fall. And utilities in Europe have been stockpiling diesel in case they cannot find enough natural gas to fuel their power plants.Russian diesel has continued to flow to Europe since the war began, but stricter sanctions that the European Union plans to impose on Russia in February could potentially cause havoc to the diesel business of traders, banks, insurance companies and shippers.Still, some energy experts said prices could soon begin to ease.Help may be on the way from an unlikely source: China. In recent months, China has been loosening export controls on diesel. Its exports rose from 200,000 barrels a day in August to 430,000 barrels a day in September, and the country has the capacity to sell even more, according to estimates by ESAI Energy.Nearly a third of Chinese diesel exports went to the Netherlands in recent months, taking some pressure off the European market. And oil refineries being built in Kuwait and China could come online as early as next year, further increasing supply.Demand for diesel and its price could also fall if much of the world slides into a recession next year, as some economists and policymakers are expecting.“A deep recession would certainly cut into diesel demand,” said Mr. Joswick of S&P Global Platts. “We don’t forecast a recession, but that is certainly a possibility.” More

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    Warehouses Transform N.Y.C. Neighborhoods as E-Commerce Booms

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    The region is home to the largest concentration of online shoppers in the country. The facilities, key to delivering packages on time, are reshaping neighborhoods.An e-commerce boom turbocharged by the pandemic is turning the New York City region into a national warehouse capital.In just two years, Amazon has acquired more than 50 warehouses across the city and its surrounding suburbs. UPS is building a logistics facility larger than Madison Square Garden on the New Jersey waterfront near Lower Manhattan.In Brooklyn, Queens and the Bronx, 14 huge warehouses to help facilitate e-commerce operations are rising, including multistory centers previously found only in Asia.Fueled by the soaring growth of e-commerce while so many Americans have been working from home, online retailers, manufacturers and delivery companies are racing to secure warehouses in the country’s most competitive real estate market for them.Every day, more than 2.4 million packages are delivered just in New York City, an online-buying mecca in a region of 20.1 million people.The feverish activity has already transformed the landscape of city neighborhoods and rural towns, transforming Red Hook in Brooklyn into a bustling logistics hub and replacing farmland in southern New Jersey with sprawling warehouses where packages are sorted, packed and delivered, often within hours of being ordered.An Amazon grocery hub in Red Hook, Brooklyn, which has emerged as a nexus of e-commerce warehouses in New York because it offers relatively easy access to Lower Manhattan, Queens and the rest of Brooklyn.Clark Hodgin for The New York TimesJust 1.6 percent of all warehouses in New York City and only 1.3 percent in New Jersey are available for lease, according to the real estate firm JLL; only the Los Angeles area has fewer warehouse vacancies in the United States. Some companies are converting buildings never intended to be warehouses. Amazon turned a shuttered supermarket in Queens into a makeshift package hub.The soaring demand for warehouses, once the ugly duckling of the real estate industry, underscores their pivotal role in a complex global supply chain. Nationwide, developers are pouring billions of dollars into the construction of new facilities, helping lift the commercial real estate sector, which has been battered by the emptying of offices during the pandemic.But the rise of warehouses has also sparked significant opposition. While they provide jobs and can lower residential property taxes by contributing to the local tax base, people across the region say the large hubs will lead to constant flows of semi-trucks and delivery vans that will worsen pollution and traffic congestion.Understand the Supply Chain CrisisThe Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.A New Normal?: The chaos at ports, warehouses and retailers will probably persist through 2022, and perhaps even longer.A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.They have also bemoaned the loss of open land to mega facilities. In recent months, residents in the southern New Jersey township of Pilesgrove, just across the Delaware River from Wilmington, Del., protested plans for a 1.6 million square-foot warehouse — larger than Ellis Island — on former farmland.While Amazon, major retailers and logistics operators such as UPS, FedEx and DHL dominated the initial wave of warehouse deals at the start of the pandemic, interest is now coming from smaller businesses seeking greater control of their supply chain amid a global bottleneck in the movement of goods.“I’ve been doing this for 30-some-odd years, and I’ve never seen it like this,” said Rob Kossar, a vice chairman at JLL who oversees the company’s industrial division in the Northeast. “In order for tenants to secure space, they are having to negotiate leases with multiple landlords on spaces that aren’t even available. It’s insane what they are having to do.”The rising cost to lease facilities has frustrated some small business owners who cannot compete with retail and logistics giants, as well as newcomers like Tesla and Rivian, which have opened showrooms and service centers for their electric vehicles in Brooklyn warehouses. Leasing prices for warehouses in the Bronx, for instance, have jumped 22 percent since the pandemic started.Warehouse jobs are still just a fraction of New York City’s labor force, but companies are on a hiring spree. Since 2019, the number of warehouse jobs doubled to 16,500 positions in late 2021. New hires at Amazon make around $18 an hour and get starting bonuses up to $3,000. But the company has also been fighting workers at some of its warehouses, including on Staten Island, who are trying to unionize to improve working conditions.Prose employs about 150 employees at its facility in Brooklyn from where it ships products across the United States and to Canada.Clark Hodgin for The New York TimesToday, nearly everything — from cars to electronics and groceries to prescription drugs — can be ordered online and arrive in as little as a few hours. In New York City, new companies are offering 15-minute grocery delivery.And though most retail sales nationwide still happen at brick-and-mortar stores, online sales are increasing at breakneck speed, growing by 50 percent over the last five years to reach 13 percent of all retail purchases, according to the census.That surge is pummeling many retailers, especially smaller businesses, that have also had to weather the loss of customers during the pandemic.At the onset of the pandemic shoppers switched to online buying at a rate that had been expected to take a decade to reach, according to analysts.Some large retailers, such as Target and Best Buy, that have a handful of warehouses in the region lean on their stores to fulfill online orders. Wal-Mart, the nation’s largest retailer, does not have a store in New York City so it uses a warehouse in Lehigh Valley, Pa., just over the border from New Jersey, and stores in surrounding suburbs to serve city residents.Amazon is taking a different approach. Across New Jersey to the northern New York City suburbs to Long Island, Amazon is cobbling together a sprawling network of fulfillment centers, package-sorting facilities and last-mile hubs. In the city it has set up a handful of facilities in the Red Hook and Sunset Park neighborhoods of Brooklyn.Amazon’s rapid expansion is not unique to the New York area. Last September alone, Amazon said in a recent earnings call, it added another 100 facilities to its delivery network in the United States.Red Hook, a neighborhood of just under a square mile bounded by water on three sides, has become a center for warehouses in the city because it is near major roadways into population centers in other parts of Brooklyn, Lower Manhattan and Queens.The owner of Prose decided to keep all his manufacturing under one roof before the supply chain problems emerged. “It has been a great decision,” he said.Clark Hodgin for The New York TimesAt least three new warehouses have opened in the neighborhood and more could be on the horizon. UPS paid $300 million for a 12-acre property, and two developers of logistics centers spent $123 million in December to buy several industrial sites there.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More

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    Organic Milk Farmers in Northeast Under Pressure as Processors Look West

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    SEARSMONT, Maine — Glendon Mehuren II’s Faithful Venture Farm, 35 miles east of the state capital of Augusta, looks as tranquil as the farms pictured on cartons of organic milk. Cows ramble among weathered barns perched on a hill surrounded by small pastures and woodlots.But things have been rough on the farm since August. That’s when Mr. Mehuren got a certified letter from Horizon Organic, which had been buying his milk for 16 years. It said it was terminating his contract in a year. Horizon delivered the same letter to 88 other organic dairy farms from Maine to New York.In December, Horizon gave all of the affected farmers a reprieve, extending their contracts until February 2023 and paying a bit more for the milk. But the future for small dairy farmers in the Northeast still appears difficult.For the past 20 years, organic milk offered a lifeline for small farms in the Northeast, allowing them to stay afloat while milking 100 cows or fewer. Now those farms are facing trouble because there is a lack of milk processors in the region and a glut of milk from huge organic dairies in Western states.On a brisk December morning, Mr. Mehuren and one of his daughters were milking their Holsteins in the small milking parlor, in six shifts of eight cows. His father was outside in a tractor, hauling hay. Mr. Mehuren quickly rattled off the names of the many nearby dairy farms that had failed over the past few decades. The farms that survived expanded, hoping that volume would offset low milk prices, he said.Organic milk has grown to account for more than 5 percent of the nation’s milk market.Tristan Spinski for The New York Times“Milk prices were very low in the early 2000s,” he said, and many small farmers felt the only options were to grow or die. “Then the organic deal kind of came along.”That gave smaller farmers a third option. Mr. Mehuren earned organic certification for his farm and dairy herd and began selling milk to Horizon in 2005.Since then, organic milk has grown to account for more than 5 percent of the nation’s milk market, and it is dominated by big businesses. Horizon Organic is owned by the French corporation Danone. Stonyfield Organic, the yogurt maker in New Hampshire that buys organic milk from New England farmers, is owned by Lactalis. And the farmer-owned cooperative Organic Valley, based in Wisconsin, now has more than a billion dollars in annual revenue.Meanwhile, bottling became consolidated in larger milk plants outside of New England. Ed Maltby, the executive director of the Northeast Organic Dairy Producers Alliance, said nearly all packaged organic milk is now ultrapasteurized, giving it months of shelf life.“It used to be that you had your supply locally to your market,” Mr. Maltby said. “Now that paradigm has been turned on its head. The whole concept of regionality has disappeared.”Sarah Alexander, the executive director of the Maine Organic Farmers and Gardeners Association, agreed.Glendon Mehuren II and Ms. Dickey, his daughter looking after a newborn calf. The farm got its organic certification in 2005.Tristan Spinski for The New York Times“If you go to a grocery store in Maine, there is Horizon milk on the shelves, and, yes, Horizon is picking up from 14 producers in Maine.” she said. “But the milk that’s on the shelves may be coming from Colorado, it may be coming from Ohio, it may be coming from Virginia.”Chris Adamo, the vice president for government affairs, policy and partnerships at Danone North America, said several factors contributed to Horizon’s withdrawal from New England.“The Northeast region provides a number of continuing challenges to pick up and transport milk to the processing facility we use in Western New York,” Mr. Adamo said in an emailed statement.“While the reduced mileage is important, it is only one factor,” he added. Mr. Adamo cited a scarcity of truck drivers as another.As Horizon withdraws, another challenge for organic dairy farmers in the Northeast is competition from larger farms.“There’s been an enormous growth of organic dairy farms west of the Mississippi — Texas, Colorado,” said Richard Kersbergen, a professor at the University of Maine’s Cooperative Extension program who has been working with Maine dairy farmers for 37 years. “That’s created a situation where these mega-organic dairy farms are able to produce organic milk at a much cheaper cost than those farms in the Northeast.”Organic milk has been a lifeline for small farms.Tristan Spinski for The New York TimesMany of those farms milk fewer than 100 cows.Tristan Spinski for The New York TimesOne company, Aurora Organic, has 27,000 dairy cows on four farms in Colorado and Texas, according to its website — the equivalent of about 500 small New England farms. Ms. Alexander called such operations “factory farms.”Amanda Beal, the commissioner of the Maine Department of Agriculture, Conservation and Forestry, said she was concerned that larger organic farms in the West were not being held to the same standards as those in the Northeast. Two rules for organic certification set by the U.S. Department of Agriculture have long been bones of contention: those requiring that organic livestock have access to pasture, and the “origin of livestock” rule limiting the conversion of conventional cows to organic.Ms. Beal said she would like to see the pasture rule more evenly enforced by organic certifiers nationwide. She said she also hoped that the U.S.D.A. would soon clarify the origin of livestock rule to eliminate loopholes used by larger dairies.“It creates an unlevel playing field for our farmers,” Ms. Beal said. “I feel if the playing field were level, our farmers could certainly hold their own.”Ms. Beal asked Tom Vilsack, the secretary of agriculture, about this when she and her counterparts in other Northeast states met with him twice, via video, to discuss Horizon canceling the contracts.Ms. Beal understands organic dairy farms because she grew up on one. That farm, now run by her brother, is among those being dropped by Horizon.“I really want to emphasize that this isn’t about one farm or my family’s farm,” she said. “This is about 14 family farms in Maine and 89 family farms across the Northeast, and they are all, every single one of them, important.”At Faithful Venture Farm, while cleaning out the parlor between milkings, Mr. Mehuren said that he understood the trends in the dairy industry but that he didn’t think they were an improvement.“Having 10 farms milking 50 cows is hugely better for local economies than one 500-cow farm,” he said. “Consolidation seems to be the name of the game. The local hardware store closes and you have a Super Walmart.”Mr. Mehuren and other Maine farmers are hoping they will be able to sell their milk to Organic Valley or Stonyfield Organic, the only other commercial buyers for organic milk in the state.Cliff Bragg, left, with his father, Wayne, at their family’s organic dairy farm in Sidney, Maine.Tristan Spinski for The New York TimesThree generations work the farm, which the Bragg family founded in 1772.Tristan Spinski for The New York TimesHorizon’s extending contracts until 2023 was little consolation to Judy Smith on More Acres Farm in East Dixfield. Ms. Smith, 68, and her husband, Leslie, 77, had been milking 30 cows and selling to Horizon. They had been hoping to transfer the farm to their 40-year-old son. But Horizon’s August letter ended that dream. The uncertainty seemed too great, and they sold the dairy herd.“We were between a rock and a hard place,” Ms. Smith said. “We were heartbroken when those cows had to go, I’ll tell you what. They were more than just milk cows to us.” More