Market Morsel: Diesel drops down

Market Morsel

Agricultural inputs have been expensive in recent years; one of the significant costs is diesel – and it’s been at record levels in the past year. What is happening now?

We all know that crude oil is the driver of diesel prices, and we can see in the chart below that crude oil prices have been falling and returning closer to longer-term averages.

The diesel price has fallen but remains steadfastly high. The average terminal price in Australia is A$171 and has been as high as A$227 this year.

The second chart shows the spread between crude oil and diesel in A¢/litre. In this, we can see the price of diesel has been trading at a huge premium compared to typical levels.

This isn’t a situation solely experienced in Australia; other nations are seeing larger diesel spreads for a range of reasons, including reduced supply at a time of increased demand to displace expensive gas for heating in Europe.

Luckily the price is stabilising for now below A$2/litre.