U.S. Diesel Crack Spread Surpasses $100, Setting Historical High
The U.S. diesel crack spread has risen to approximately $107 per barrel, setting a historical high; U.S. diesel futures have cumulatively increased by about 51% over the past 10 weeks, reaching a 52-month high, driven by global refinery supply disruptions and transportation risks in the Strait of Hormuz, which have collectively pushed up refined oil premiums.
The diesel crack spread measures the theoretical profit for refiners from processing crude oil into diesel, not the retail price of diesel. Typically, when crude oil is around $70 per barrel, refiners earn about $20 to $30 per barrel of diesel processed; the current level close to or exceeding $100 reflects the market's willingness to pay a very high premium for immediately deliverable middle distillates.
The supply tightness stems from two simultaneous shocks: the U.S.-Iran conflict has restricted the transportation of crude oil, diesel, and other petroleum products through the Strait of Hormuz; ongoing drone attacks by Ukraine on Russian refining facilities have weakened Russia's diesel production and export capacity. According to Bank of America, Russia's refining throughput has dropped from about 5.3 million barrels per day a year ago to about 3.9 million barrels per day, and Russia has suspended diesel exports.
U.S. refineries are operating at about 97% capacity utilization to increase processing volumes in an attempt to fill the international gap; however, export demand is simultaneously consuming domestic supply. U.S. diesel and related fuel exports have increased by about 28% year-on-year, with inventories significantly declining, and distillate inventories are at their lowest levels in at least 20 years; this means that while the U.S. is a source of incremental supply, it is difficult to fully isolate from international market price shocks.
The national average retail price for diesel in the U.S. is about $5.62 to $5.63 per gallon, close to the historical record set in May 2022; a 3,000-acre farmer in Iowa expects fuel expenses from late summer to the end of the year to exceed $40,000, about double the usual level. Rising diesel prices will transmit through freight, agricultural machinery, construction equipment, heating oil, and retail distribution to business costs and consumer goods prices.
Crude oil prices have also risen by more than $4 per barrel due to escalating military conflict between the U.S. and Iran, closing at a five-week high; however, the increase in diesel prices is outpacing that of crude oil, indicating that the core tension lies in "refining capacity and refined oil logistics," rather than simply a shortage of crude oil. The number of global refinery disruptions is estimated to be about 60% higher than seasonal norms, further amplifying the structural gap in middle distillates.
In market mechanisms, buyers include freight companies, farmers, builders, aviation and shipping logistics firms, heating oil dealers, and restocking traders; they lock in supplies in advance when inventories are low and supply is uncertain, driving up spot and futures prices. Beneficiaries are U.S. refineries that can reliably access crude oil, achieve high diesel yields, and maintain high operating rates, as well as companies holding deliverable diesel inventories and tanker capacity; pressured parties include transportation, agriculture, retail, and manufacturing sectors that cannot fully pass on fuel costs to customers, as well as end consumers facing higher logistics inflation.
Source: Public Information
ABAB AI Insight
The vulnerability of the diesel market predates the current Middle East conflict. The global refining system has experienced partial capacity exits, delayed maintenance, and product structure reconfiguration after the pandemic, while Europe has long relied on Russian middle distillates to balance supply; after the Russia-Ukraine war in 2022, Europe shifted to sourcing diesel from the U.S., the Middle East, and Asia, elongating global trade flows. The recent Ukrainian strikes on Russian refineries have directly reduced processing capacity, while disruptions in the Strait of Hormuz have restricted the maritime transport of Middle Eastern crude oil and refined products, impacting the entire chain of "turning crude oil into diesel and then transporting it to consumption points."
The core of the capital pathway is not crude oil prices, but the product choice of refiners. After the crack spread surpassed $100, refiners have a strong incentive to process crude oil preferentially into diesel, heating oil, and jet fuel; Valero Energy and Marathon Petroleum have indicated in their Q2 earnings reports that fuel processing margins are about twice what they were a year ago. High margins will attract refiners to delay maintenance, increase operating rates, and compete for crude oil, but new refineries and additional complex processing capacity require years of permits, equipment, and capital expenditures, making it impossible to immediately fill the gap.
This is similar to the European energy crisis of 2022: prices first reflect marginal supply and logistics panic, rather than an immediate shortage of oil for all consumers. The difference is that diesel is the "universal power" of the real economy: trucks, agricultural machinery, mines, construction equipment, railway locomotives, port machinery, and some heating rely on it. Gasoline price increases primarily affect private car travel, while diesel price increases more broadly transmit through transportation costs, planting and harvesting, warehousing and distribution, and construction costs, thus typically having a stronger stickiness to core commodity inflation.
Essentially, this is a restructuring of the industrial chain: low-cost crude oil no longer automatically equates to low-cost fuel; what is truly scarce is safe refining capacity, qualified diesel inventories, shipping channels, and transport vessel availability. After Russia lost part of its export capacity, U.S. refineries are filling the gap with high operating rates and exports, concentrating income and profits among assets with complex refining equipment and Gulf Coast export infrastructure; meanwhile, importing countries and high diesel-consuming industries are forced to accept higher logistics costs. As long as refinery disruptions and transportation risks in the Strait remain unresolved, the high premium of diesel relative to crude oil will continue to transfer to the global real economy.
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