IEA's emergency release of 20 million barrels of diesel fails to quench the thirst; diesel crisis sweeps across the entire U.S. supply chain; Trump faces mounting pressure ahead of the midterm elections.

Global diesel crisis prompts joint action by multiple countries. The International Energy Agency (IEA) said in a statement on Thursday that its member countries have agreed to release more than 20 million barrels of diesel reserves "as soon as possible" to address soaring global fuel prices. However, this release is equivalent to less than one day of global diesel demand, or slightly more than five days of U.S. consumption, and whether it can effectively stabilize prices remains uncertain. On the same day, the U.S. Labor Department reported that the September Producer Price Index (PPI) rose far more than market expectations. In the 34-page report, the impact of high energy pricesespecially record diesel pricescan be seen everywhere. As Oxford Economics put it: "Diesel is the lifeblood of the economy." Although most American households do not drive diesel vehicles, they cannot remain unaffected: soaring diesel prices are pushing up consumption costs through multiple channels, from logistics and transportation to food on the table and even holiday gifts. Record Diesel Prices Prompt Coordinated Reserve Releases by Multiple Countries According to AAA data, the average U.S. retail price of diesel reached $6.32 per gallon on Thursday, more than 70% higher than a year earlier, and briefly surged to a record high in September. Influenced by news of the reserve release, diesel futures fell more than 1% on Thursday to $4.86. The root cause of this round of price spikes is severe damage to global refining capacity: Ukraine continues to strike Russian refineries, while Iran and its Houthi allies repeatedly attack energy facilities around the Persian Gulf. The IEA, headquartered in Paris, has more than 30 member countries, including the United States and major allies in Europe and Asia, and its mission is to release oil reserves when crises such as wars in the Middle East and Eastern Europe disrupt energy security. In fact, the IEA's action was already foreshadowed: in March this year, member countries agreed to release 400 million barrels of oil reserves in response to global supply disruptions caused by the Iran war. So far, 330 million barrels have been released, with some members actually releasing more than initially pledged, and total releases will exceed 400 million barrels. On October 2, the Group of Seven (G7), led by France, announced that it would release a large amount of diesel inventories within 20 days, but did not give a specific quantity. If the release announced by the IEA on Thursday follows the same 20-day timetable, member countries will supply about 1 million barrels of diesel per day for nearly three weeks. U.S. President Donald Trump said earlier this month that Europe had agreed to use "large amounts of well-stocked diesel." With the U.S. midterm elections approaching on November 3 and political pressure from high fuel prices, the Trump administration has continued to urge Europe to release diesel inventories. However, last week's diesel agreement between Trump and Russia is viewed by analysts as having limited effect on lowering prices. Market participants noted that releasing reserves treats the symptoms but not the root cause. Andy Lipow, president of Lipow Oil Associates, said: "This does not solve the fundamental problemhow to increase refinery output: refineries in the Middle East and Russia have been damaged, while U.S. refineries are already running at full capacity." Transportation: Logistics Costs Accelerating Every item American consumers own, eat, and drink depends on trucks at some point in the supply chain, and the vast majority of the U.S. freight fleet is powered by diesel. Over the past year, diesel prices have more than doubled, driving up the cost of moving goods, and freight companies have begun demanding higher service prices. In September, the PPI index for road freight transportation costs rose 19% year over year, the largest increase in more than four years. Notably, freight costs responded to the diesel price spike much faster than in the previous post-pandemic round of price increases. The reason is that the current U.S. economic fundamentals are far better than they were then, with a 4.2% unemployment rate still at a historically low level, supporting strong demand; at the same time, the absolute price of diesel is already more than twice what it was in the early pandemic recovery. Agriculture: Transmission from Farm to Table Diesel is crucial to agriculturetractors and harvesting equipment rely on diesel to operate, and the trucks that transport grain to supermarkets and restaurants also cannot do without it. Although final food prices in September PPI and CPI rose only modestly, costs upstream in the food supply chain are rising rapidly. The average of the PPI "intermediate demand" first- and second-stage food input costs, which measures producers' own energy costs as well as energy costs embedded in agricultural inputs such as fertilizer, rose 15.6% year over year in September, also the largest increase in about four years. Prices of energy-sensitive feed products such as corn, hay, grass seed, and oilseeds all rose more than 25% year over year. Historical experience shows that American households should prepare for higher supermarket food prices in the coming months. Matthew Martin, senior U.S. economist at Oxford Economics, said after the PPI report was released: "We expect food inflation to pick up later this year." It is worth mentioning that soaring diesel prices may also make the upcoming Christmas holiday shopping season more expensive, and have already affected toys, a major holiday consumer product. Due to factors such as rising transportation costs, toy prices in September posted the largest month-over-month increase on record. Outlook: Reserve Releases Cannot Mask Supply Shortfalls; Inflationary Pressure Will Persist Compared with the oil crisis of the 1970s, the U.S. economy is much less energy-intensive, but the impact of energy prices on overall prices still existsand the longer it lasts, the deeper the impact. PPI categories such as manufacturing materialsthemselves inputs that have absorbed higher diesel costsare rising at double-digit annual rates. For producers, they must either absorb the pressure of squeezed profit margins themselves or pass costs downstream to consumers. Analysts generally believe that without a fundamental improvement in refining capacity shortfalls, a 20 million-barrel reserve release will be hard-pressed to reverse the supply-demand balance. With diesel prices remaining high, the "last mile" of U.S. inflation may prove longer than expected, and the pressure on the Federal Reserve to control inflation will increase accordingly.