Why is diesel so much more expensive than gasoline?

0:00Brian Calley:Support for Here and Now Anytime comes from MathWorks, creator of MATLAB and Simulink software, to design and develop engineered systems, accelerating the pace of discovery in engineering and science. Learn more at mathworks.com. WBUR Podcasts, Boston.

0:20Tom Kloza:It manifests itself in every nook and cranny of the economy.

0:25Brian Calley:The price of oil, and especially diesel, has a way of seeping into everything in the economy, even if you're not burning it yourself. It's Monday, September 21st, and this is Here and Now, Anytime from NPR and WBR. I'm Chris Bentley.

0:48Brian Calley:Today on the show, we'll zoom in on some economic pain points from rising gas prices to health care. Some business owners say the cost of health insurance is forcing them to hire fewer people. There's a certain like desperation that that is starting to build and also exhaustion because things aren't really settling down. Also, scientists greet a new species in the South American jungle by saying, When I first saw him, like, it's so small. It's smaller than a domestic cat. And yeah, he's my best friend, of course. A conversation with the biologist who helped discover the Tilkayo tiger cat, coming up in about 15 minutes.

1:32Brian Calley:But first, diesel prices are at a record high. They're rising much faster than the price of gasoline. The cost of diesel has risen over 70 % since the U.S. and Israel launched a war on Iran in February. That war has disrupted shipments of crude oil through the Strait of Hormuz and put pressure on oil refineries. Diesel goes into trucks, ships, tractors, school buses, things that make the economy hum. And those higher prices are getting passed on to all of us in the form of more expensive groceries, transportation, and other goods. We wanted to learn a little more about the role diesel plays in the global economy, so we asked Tom Kloza.

2:14Brian Calley:He's the founder and chairman of Kloza Advisors and chief energy advisor for Gulf Oil. Here's his conversation with Scott Tong.

2:21Tom Kloza:Well, diesel is the real driver internationally. You use about 30 million barrels a day of diesel versus about 26 or 27 for gas. And it happens to be the molecule that's a little bit short globally at the moment. Yeah, well, a lot of diesel, I understand, comes from Russia or historically has, but now its refineries have been hit by Ukraine in its war. Now Moscow is banning diesel exports. How is that affecting all this? Russia used to export as much as 800 ,000 barrels a day or about a million barrels a day, in some cases, of diesel. And they haven't been exporting at all this year. As a matter of fact, the worry in the marketplace and one of the reasons why prices are so high is people sense that they might have to import some diesel.

3:10Tom Kloza:Wow. Now, we have refineries in the U.S., of course. Could they make up the difference? U.S. refiners are running at very, very high rates. And as a matter of fact, we're exporting about 1.7 million barrels a day of diesel worldwide, probably at about 40 different countries. So to the extent that Russia has dropped out, the United States has filled that void. So then if the U.S. refineries are trying, working hard to make up the difference for Russian diesel that's not in the world market, Help us understand a little bit more why diesel is just growing that much more quickly than gas in price.

3:48Tom Kloza:It's pretty tight in terms of supply on every continent. The inventories are as low as they've been really in my lifetime, you know, worldwide. And, you know, that's a problem because with diesel, demand ramps up now because it's used a lot in agriculture. And then it really ramps up in the wintertime because the diesel molecule is pretty much the identical molecule that people use to heat their homes in Europe and in the Northeast. Well, so you're saying, OK, we've talked about supply being tight and now demand is going up in harvest season. It's going to keep going up in the winter. Does that mean reasonably diesel is going to keep going north pretty quickly?

4:31Tom Kloza:Yeah, it's worrisome. And that's why the prices are so high. You know, refiners worldwide, and particularly in the United States, they're making about$100 to$110 a barrel on diesel. That's not normal. You know, the normal relationship is to make maybe$20 or$25 a barrel. So the market has already anticipated that things are going to be very tight and diesel is going to be very precious. And is that part of why we're paying more? Because the refiners are, it's just a big profit margin right now for them? Yeah, well, refiners don't sort of declare what they want to sell the product for. The market determines that.

5:08Tom Kloza:And right now, they're the beneficiaries of these high prices. They are getting, you know, four and five times the profit margins that they would normally get. Yeah. There's an estimate by Brown University that estimates American households on average have paid nearly$400 additional per household in higher diesel prices since the war in Iran began. That's on top of about$470 more for gasoline total. Does that math in general make sense to you? Yeah, it's tough to extrapolate the exact cost, but I'll give you an example. The busiest port in North America is the port of Long Beach in California.

5:47Tom Kloza:If you bring goods in there and you take it on the road to Dallas, which is a very, very common route for 18-wheelers, it costs about$1 ,450 in diesel fuel costs. that's up by about six or seven hundred dollars from where it was before the war and if you look at 18 wheeler traffic throughout the country and you think they're all hauling things and there's going to be fuel surcharges different freight charges on it so it it manifests itself in every nook and cranny of the economy the other thing is agriculture there are farmers you know who might use 100 to 150 gallons of diesel to operate their tractors and other equipment and they're looking at the same sort of numbers.

6:30Tom Kloza:And the worst thing is, you know, there's about 4 million people in the U.S. Northeast who still depend on heating oil. Imagine if you have to use 1 ,000 gallons of heating oil this winter, you're looking at like$6 ,000 or more. Wow. And Tom, there's something oil analysts called demand destruction. That is, if something stays very expensive for a long time, people will stop buying it. They'll change their behavior. Could that happen with diesel? Yeah, and it's more difficult to really quantify because people react viscerally to gasoline prices. They'll drive less at$4, they'll drive a little bit less at$4.50, and they'll drive a lot less at$5.

7:12Tom Kloza:With diesel, it's more difficult to tell. If you've got crops in the field, you're going to have to harvest that with expensive diesel. And if you're moving things around the country, you're going to move it. Particularly as we get into Christmas shopping season, there's going to be more truck traffic on the road. We are seeing some signs, though, that people are using less. We've been talking to Tom Kloza, founder and chairman of Kloza Advisors, and he's chief energy advisor for Gulf Oil. Tom, thank you very much. OK, thanks, Scott.

7:46Brian Calley:Well, Tom Kloza was talking about people who can't exactly cut back on fuel demand. farmers who have to harvest crops this time of year, for example, and the shipping industry, which has to fulfill its orders. Louis Pugh knows that well. He's been driving trucks for over 25 years. He's also the executive vice president of the Owner-Operator Independent Drivers Association, which represents nearly 150 ,000 truckers.

8:12Tom Kloza:Diesel fuel is the highest variable cost for a trucker or a trucking company. And so what we get into, especially when you're in a small business, which is what most trucking companies are, like 95 % of all registered mercury are small business. So with that being said, now you're probably$2 ,500 for the week. As I tell people, every time diesel fuel goes up a dollar a gallon at the pump, that's another$400 or more on average per week that you're spending on fuel. You know, that's$1 ,200 to$1 ,500 more now per week than what truckers were actually spending in January. And again, most of these people out here in the trucking business and own these trucks, they're small business people like I was and they're little people, mom and pop folks like that.

9:07Tom Kloza:So this is a lot for them to bear. It's kind of just one more kick in the teeth, for lack of better terms, because ever since COVID, trucking has been in the longest freight recession in history. Huge mess of overcapacity during COVID because rates were so high and so much was moving. And then all that dropped off. So there's already been people going out of business, mostly new. We saw the first year rates start to kind of turn to the good where people start making money. and now we have this fuel. So all this money that folks have saved in reserve or have had in saved reserve pretty much wiped out.

9:46Brian Calley:There is more to that conversation and you can listen to it all at hereandnow.org. We're going to take a short break, but when we come back, we'll hear how the rising cost of diesel and everything else is affecting hiring in Michigan and what small business owners in particular are doing to deal with the price shocks. Stick around.

10:08Tom Kloza:Support for this podcast comes from Is Business Broken, a podcast from the Mehrotra Institute at Boston University. On the show, host Kurt Nickish asks the thorny questions necessary for this moment about the role business plays in society. Questions like, why are executives paid so much? Why is innovation in healthcare so hard? Is ESG just greenwashing? And of course, is business broken? Follow Is Business Broken wherever you get your podcasts.

11:05Brian Calley:owners say they're cutting back on hiring because of the rising cost of health care. We're going to check in on Michigan for a few minutes with Brian Calley, president and CEO of the Small Business Association of Michigan. He told Indira Lakshmanan what they found in a recent survey of their members. There's lots of talk about rising costs, but one thing we've been hearing year after year at a higher and higher concern level is about the rising cost of health insurance in particular. And in the old days, if there was demand for your good or service, it was a no-brainer. You expanded your business to take advantage of those goods and services.

11:41Brian Calley:But what we're finding now is that more and more often, the math doesn't work. Either can't find the right people, or when you can, the cost of expanding your team doesn't work. It really is a situation that is leading to slower activity among small businesses. Well, I was struck that your survey found that three in four small businesses in Michigan said that the cost of providing health care was affecting their ability to hire employees, and half of them said they had to reduce or eliminate benefits due to higher costs. So tell us, how much more are Michigan businesses paying per employee for health care now versus previous years?

12:21Brian Calley:46.3 percent reported an increase of at least$1 ,000 per employee. and 15 % of those said per employee per year. And then there was another healthy chunk, 15 % said$2 ,000 per employee per year. These increases, it's not just this year. That happened last year and that happened the year before. So it's accumulating. Now it's affecting employment in a way that it never has before. All right, so on the one hand, it sounds like rising healthcare costs are potentially driving layoffs or slowing hiring in your state. Is that right? Yeah, I think that's the exact right way to look at it. It slows hiring.

13:03Brian Calley:And when you have small businesses that aren't hiring as much as before, 10 years ago, small businesses were like, look, I don't care about, I'll train people. I'm so desperate for people. I need to add people. I'll hire just about anybody and give them a shot. And that has really changed now where small businesses are saying, I just cannot afford to expand, even though there's demand for the good or service. So what kind of solutions are your members asking for? Well, anything that can reduce costs of health insurance. And then, of course, the overall cost environment is difficult as well. The first thing is for the government to stop.

13:42Brian Calley:In Michigan, the government has done a lot of things to add to the cost of employment. additional employee mandates, the sorts of things that make offering a job to a person more expensive. The second thing that we're looking for is for the ability to create health risk pools that allow small businesses to organize the same way big businesses do. That's something that a few other states have moved forward on doing, and we think that it could make a big difference here in Michigan too. Well, with the high cost of healthcare for businesses, plus you're being hit by tariffs and high gas prices in your state.

14:18Brian Calley:I'm wondering how all of this is affecting political sentiment among your members, among small business owners in the state of Michigan ahead of the midterms. Small business owners are really feeling quite frustrated about how long some of these issues have been growing and brewing. and healthcare costs in particular, other cost drivers being added on top of that, it just exacerbates it. But the thing that I've noticed about small business owners is that there's a certain like desperation that is starting to build and also exhaustion because things aren't really settling down. People are really looking for solutions, not just rhetoric and not just finger pointing and blame, but instead what are solutions to these issues.

15:15Brian Calley:And so as we look at it, that's our mission. We have a few proposals on the table in Michigan now, but it's really a small business owners and small businesses themselves oftentimes are taken for granted. People treat them like they're nice to have in the economy, but they're really, they're the main event in most communities around the country. and they're hurting right now and they desperately need solutions. Brian Calley is president and CEO of the Small Business Association of Michigan. Brian, thank you so much for joining us. My pleasure. Thank you for having me.

15:57Brian Calley:Coming up, how scientists found a new species of cat in the wild and know they did not just stand in the woods and rattle a box of treats. We'll be right back. Did you hear the news? A new cat just dropped. Lepardus tilcaio, or the tilcaio tiger cat, looks like a leopard, but is smaller than a house cat. It's not every day you see a new species of charismatic megafauna, and this little guy is definitely charismatic. This is the first new cat species described in more than 100 years, And one of the people we have to thank for the adorable pictures flooding the internet is Paula Nogales-Ascarruns, a biologist and National Geographic explorer.

16:42Brian Calley:She told Scott Tong what it was like seeing the tiny tiger cat for the first time. Okay, so when I first saw him, like, it's so small. It's smaller than a domestic cat, and it's slender. That was the first thing that really attracted my attention because I never saw, like, a small, like, that small wild cat, never before.

17:01Tom Kloza:And the spots are important, right? Like big spots that you had not seen before?

17:06Brian Calley:Yeah, also the spots are like big that can come with a forest, like this cloud forest where it lives. And also it has rounded ears, you know, that make it look cute.

17:17Tom Kloza:Cute and unique. So who found him in the first place? Do you know what the story was behind him?

17:23Brian Calley:Yeah, so usually like there was some local that was in the forest and mistook as a domestic cat when it was a kitten. You know, they look similar. So he took it home. And then we realized that was not correct, you know, to have a wild animal when he realized it was. So he took it to the refuge, which is Senderverder Animal Rescue.

17:43Tom Kloza:And that's where you met him first, in the refuge. And then I gather you and your team of scientists did a lot of genetic research. So what makes this species different?

17:58Brian Calley:So, genetically, we analyzed like 38 tiger cats from the entire region. And we could identify that these tiger cats, like Lepardus tilcayo, differentiate for the other groups like 1.4 million years ago, which is kind of amazing because sometimes like if a species is like, you know, they diverge 1 million years, you can consider that cat another species. But this one is 1.4 million years. Wait, time out.

18:26Tom Kloza:It started a new branch on the family tree 1.4 million years ago, is that what you're saying?

18:35Brian Calley:Yes, correct. Like 1.1 million years ago, this cat started like a new branch in the entire cat family.

18:42Tom Kloza:Wow. And, you know, this is the first new cat species announced since 1923. So rare, unusual. I know you're a serious scientist, but are you excited to?

18:54Brian Calley:Yeah, I'm so excited. You never think about discovering a new species of cat. You know, we always hear about insects or rodents, but a cat is really a big deal. So we are really happy and proud of our research.

19:09Tom Kloza:So in this new species we're talking about, you've mentioned the name of the species, Lepardus tilcaio. What does tilcaio mean?

19:19Brian Calley:so it doesn't have like with toy doesn't have a meaning but like we have a lot of movement in the in the in the media so there were people that speak aymara which is a native language and they tell us tilkayo means tilly that is means small and kayo it's foot so it's like a small paws that's the meaning of tilkayo we know not that like thanks to social media small like tiny paws