U.S. Diesel Prices Surge to Historic Highs in One Week, Marking the Third Record in Two Weeks
According to the latest data from financial data account The Kobeissi Letter, the national average retail price of diesel in the U.S. has reached a record high of $6.45 per gallon, an increase of 40 cents from a week ago; this marks the third time in two weeks that the average diesel price in the U.S. has set a new record.
Looking at a longer time frame, the increase is even more pronounced: over the past month, the average diesel price in the U.S. has risen by $1 per gallon; since January of this year, the cumulative increase in diesel prices has reached 84%. Several energy analysts have previously estimated that, when converted to crude oil equivalents, consumers are currently paying a cost for diesel equivalent to crude oil prices of about $250 per barrel, far exceeding current actual crude oil quotes.
California's situation is even more extreme, with the average diesel retail price there rising to $8.40 per gallon, setting a record for the highest average price in a single region in U.S. history; previous reports have indicated that the average diesel price in some California cities is nearing $8.50 per gallon, with some gas stations displaying prices that have reached the maximum display limit of $9.999 per gallon.
Alongside the surge in oil prices, market expectations for a Federal Reserve interest rate hike in October have also reached new highs. The Fed announced a 25 basis point rate hike during the week of September 17, raising the federal funds rate range to 3.75%-4%; both Goldman Sachs and Morgan Stanley expect the Fed to raise rates by another 25 basis points in October to address inflationary pressures stemming from rising oil prices—indicating that the Fed is attempting to counteract an inflation shock originating from the supply side rather than the demand side through tightening monetary policy.
Analysis from JPMorgan indicates that rising diesel prices often first reflect in corporate operating costs before gradually transmitting to consumer prices, a process that typically involves a time lag. Meanwhile, energy analyst Andy Lipow noted that current gasoline prices in the U.S. are at "the highest level for this time of year in history," marking the most expensive September on record, and the continuously rising oil prices have begun to suppress end demand.
From a financial and asset linkage perspective, the surge in oil prices combined with rising interest rate expectations is creating synchronized pressure on multiple asset classes: Bitcoin's year-to-date decline has expanded to nearly 12%, trading at about $76,400; gold prices have significantly retreated from the year's historical high of about $5,600, currently maintaining relative stability; tech stocks are also believed to face similar valuation pressures. This energy cost shock, triggered by geopolitical conflicts and a contraction in refining capacity, is transmitting pressure from the real economy's transportation, agriculture, and logistics sectors further into financial markets such as cryptocurrencies, precious metals, and equity assets, forming a negative feedback loop that reinforces the interplay between energy, inflation, and asset prices.
The current upward momentum in diesel prices primarily stems from the ongoing escalation of geopolitical conflicts in the Middle East and the structural contraction of domestic refining capacity in the U.S. (including the shutdown of two major refineries in California), which have combined to drive U.S. diesel prices from around $3.70 per gallon to $6.45 per gallon in less than a year.
Source: Public information
ABAB AI Insight
The Federal Reserve has historically rarely raised interest rates consecutively due to supply shocks causing input inflation without signs of demand overheating in the economy— the last similar situation can be traced back to the oil crises of the 1970s, when the Fed, under then-chairman Paul Volcker, was forced to raise rates significantly to combat stagflation triggered by soaring oil prices, resulting in a severe recession. This time, the Fed raised rates by 25 basis points in September, and the market expects another hike in October, following the rare historical path of "supply shock-induced rate hikes."
Goldman Sachs and Morgan Stanley, two major Wall Street investment banks, have independently set a 25 basis point rate hike in October as a baseline expectation, indicating that mainstream sell-side institutions are concentrating their funding and research resources on "re-inflation trades"—betting that the Fed will continue to tighten monetary policy rather than shift to easing. Meanwhile, funds have begun to withdraw from traditional inflation-hedging assets like Bitcoin and gold (with Bitcoin's year-to-date decline expanding to nearly 12% and gold significantly retreating from its yearly high), adjusting positions to respond to the unexpected monetary policy path of "rate hikes rather than cuts."
The most direct historical analogy is the oil crises of 1973 and 1979—at that time, geopolitical conflicts in the Middle East similarly led to a sharp reduction in crude oil supply and soaring refined oil prices, ultimately evolving into prolonged stagflation, with the Fed forced to combat input inflation with high interest rates, paying the price of economic recession. The current global energy market is in a phase where geopolitical conflicts and rigid contractions in refining capacity are occurring simultaneously, and the similarity to the 1970s lies in the fact that this round of inflation also originates from the supply side rather than the demand side, which is precisely the type of inflation that monetary policy tools find most difficult to respond to accurately.
This event essentially exposes the structural mismatch between monetary policy tools and the causes of inflation: interest rate hikes should be used to suppress demand-pull inflation, but the current inflation stems from supply contractions caused by Middle Eastern conflicts and the permanent exit of refining capacity, and raising rates cannot increase the actual supply of crude oil and diesel, nor can it quickly suppress the rigid demand for transportation and agricultural fuel. Instead, it may further suppress corporate investment and consumer spending by raising financing costs, creating a situation where inflation remains unresolved while stagnation arrives first. Mechanistically, the Fed's choice to raise rates rather than wait indicates its greater concern about the risk of inflation expectations spiraling out of control rather than the short-term risk of slowing economic growth, representing a typical policy choice of "choosing the lesser of two evils."
ABAB News · Cognitive Laws
The illness on the supply side cannot be cured by monetary policy; it can only accompany the pain.
The fear of uncontrolled inflation triggers policy earlier than inflation itself.
Declines in asset prices are often the first signal of tightening policy.