Navigating the diesel fuel market disruptions

As of October, the national average for diesel fuel in Canada was about $2.63 per litre. Compared to last year in October, that is a 70% price increase! When broken down across provinces, this October had prices averaging around $2.46 per litre in Alberta and up to $2.90 per litre in parts of Quebec, Saskatchewan and British Columbia.

Almost all the price increase seen in diesel in Canada and around the globe is the result of ongoing international conflicts and tightening of global supply resulting from those conflicts: on ongoing conflict between Iran and the United States, a ban on Russian diesel exports due to the ongoing conflict between Russia and Ukraine, and mounting attacks on Russian refineries. These conflicts have pulled large volumes of oil and diesel from international markets. The result of that shortage has meant increasing competition for that now scarcer supply of diesel which has driven prices up.

Other factors driving up the price are United States refiners operating at near full capacity, with little room now to refine and ship more needed diesel. 

For some Canadians, that may not mean much. Most vehicles on the road are standard gasoline vehicles, with only 2.7% of registered light-duty vehicles in Canada being diesel. The majority of those, being medium- and heavy-duty trucks used in construction and transportation. So while most Canadian drivers may not feel those price increases when they stop to fuel up, they certainly feel when increasing diesel fuel costs are factored into the price for home construction and groceries.

Things are likely not going to get much better in the coming months. While some forecasts place the price of diesel below $2 sometime in 2027, that will only happen if the tightened global supply eases and the international conflicts resolve themselves.

Then there is the unpredictability of the United States president.

With rising diesel prices, President Trump announced he may restrict the export of diesel from the United States, and threatened other countries with tariffs if they do not open their oil reserves to lower prices by putting more diesel into the market. His Republican Party is facing a tough mid-term election cycle where high fuel costs and cost of living are the top concerns of voters.

A group of seven nations announced in early October that they do plan to release some 100 million barrels of oil and other products over several weeks, including large amounts of diesel fuel. Still, the amount of fuel that is stated to be released will not make much of a dent in the overall price. 

Canada has already announced plans for how to cope with this uncertainty and President Trump’s threat to cut diesel exports.

Energy Minister Tim Hodgson announced Canada has contingency plans in place for any possible disruptions to diesel supply if President Trump follows through on his threat to cut off diesel exports from the United States. Hodgson said Canada could redirect its diesel output away from the United States to Atlantic Canada, Quebec and Ontario, or to European buyers. 

Conservative opposition leader Pierre Poilievre has put forth a Diesel Price Relief Action Plan, calling for the elimination of all federal taxes on diesel, including the GST and excise tax, until July 1, 2027. 

Whether these measures would bring down diesel prices is anyone’s guess. At best they are a stopgap measure until larger structural and geopolitical issues are resolved.