The average retail price of diesel in the US has risen to $5.62 per gallon, nearing the historical high of $5.82 per gallon set in June 2022, and is up 53% from a year ago.

The supply tightness comes from both ends: the US-Israel conflict affecting oil and refined product transport near the Strait of Hormuz and causing unplanned shutdowns at Middle Eastern refineries; meanwhile, ongoing attacks by Ukraine on Russian refining facilities have reduced the amount of diesel and other distillates available for export from Russia. The Dallas Fed reported that these attacks once impacted up to 2 million barrels per day of Russian crude processing capacity.

Russia was previously a major global diesel exporter, but damage to refining capacity and domestic fuel tightness have led it to tighten refined product exports; although China partially eased fuel export restrictions in July, the additional supply has not fully compensated for the disruptions in Middle Eastern shipping and the reduction in Russian exports.

Diesel demand is entering the Northern Hemisphere's agricultural harvest season. Diesel is used not only for agricultural machinery but also for heavy truck freight, rail, construction, and industrial equipment, so price increases will first translate to agricultural production and logistics bills, and then into retail goods and service prices. In some areas of California, diesel retail prices have already returned to over $7 per gallon.

Refining margins have already reflected the supply gap: the US diesel crack spread once rose to $102.20 per barrel, setting a new historical high. The crack spread measures the gross profit margin for refineries processing crude oil into diesel, and the shortage of refined products has caused its increase to significantly outpace simple crude oil price changes.

In market mechanisms, farmers, truckers, construction contractors, and industrial fuel buyers are passive buyers who can only accept higher fuel costs within their operational and delivery cycles; refiners and traders holding refined product inventories benefit from the crack spread and spot tightness. Fuel costs can be passed on to food, transportation, and end goods prices, but small carriers facing intense competition and fixed orders or unable to hedge fuel prices will bear greater profit pressure.

Source: Public Information