US diesel prices have surpassed $5 a gallon, reaching an average retail price of $5.044 a gallon on Monday, according to the American Automobile Association (AAA). This represents an increase of over a third since the Middle East conflict began. This surge marks the first time diesel has exceeded this price point since December 2022, highlighting increasing fuel cost pressures on the global economy.
The recent increase is largely attributed to renewed hostilities in the Strait of Hormuz, a critical shipping route for global oil supplies. Analyst Patrick De Haan from GasBuddy predicted on July 13 that the national diesel price would likely reach $5 a gallon by the end of that week. The conflict has caused significant disruptions, including a near-complete blockade by Iran, impacting 10% to 20% of global seaborne diesel supplies. This has also led to a slump in Middle Eastern crude oil flow to Asian refineries, forcing production cuts and further hindering global diesel availability.
EIA data confirms the upward trend, with the national average on-highway diesel price rising 22 cents to $4.796 per gallon on July 14. Regionally, the Gulf Coast saw the largest jump, increasing 32 cents to $4.546, while the West Coast recorded the highest average at $5.550. AAA reported a slightly higher national average of $4.882, which is $1.176 higher than the previous year.
Economists are concerned that sustained high diesel prices could hinder global economic activity. Diesel is a crucial fuel for manufacturing and freight, meaning higher costs for production and transportation will eventually be passed on to consumers. This renewed volatility in energy prices, described by GasBuddy's De Haan, could escalate if oil flows through the Strait of Hormuz do not resume meaningfully. Previous inflation data in June showed easing pressures due to lower energy costs, but continued increases in July could quickly reverse that trend, impacting the US inflation outlook.
