Global diesel prices have reached a four-month high, driven by severely tight supplies and ongoing refinery disruptions. U.S. inventories of distillate fuels, which include diesel and heating oil, are nearing a 20-year low, with East Coast inventories at a record seasonal low. For the week ending August 26, U.S. distillate inventories fell by 2.2 million barrels to 103.4 million barrels, representing a 14.6% decrease below the five-year seasonal average. The average price of diesel in the U.S. reached $5.62 per gallon by the end of August, a 62% increase from $3.50 in early January and 53% higher than a year prior, nearing record highs seen after the 2022 invasion of Ukraine. This upward trend is expected to continue as the harvesting and heating seasons approach, further straining already limited supplies.
The global shortage is primarily attributed to significant refinery disruptions and reduced export capabilities from major producing regions. Russian refining capacity has been severely impacted by drone strikes, with approximately 40% of its capacity affected, leading to extended diesel export bans. Exports from the Persian Gulf are also significantly reduced, operating at only about 40% of pre-war levels. These disruptions, coupled with robust demand from sectors like agriculture, construction, and transportation, have created a significant imbalance. Goldman Sachs analysts have more than doubled their forecast for U.S. diesel refining margins in 2027 to $63 per barrel, up from $27, and to $49 per barrel in the EU, from $19, reflecting the sustained tightness in the market.
The rising cost of diesel, often referred to as the "workhorse" fuel, is having a substantial impact across various industries. Farmers, for instance, are facing double their typical fuel costs during harvest season, straining budgets and potentially leading to financial distress for some. The trucking industry, while larger companies may pass on costs, sees smaller operators and independent drivers struggling with reduced profit margins. Overall, higher diesel prices are contributing to increased costs for transportation, agriculture, and construction, which are subsequently passed on to consumers through higher prices for goods and services. This situation is expected to persist unless there are significant increases in supply or a substantial drop in demand, with some analysts suggesting prices may need to rise further to curb consumption.
