Diesel prices have soared to their highest point in over four months, driven by increased attacks on refineries and persistent supply disruptions from conflicts in the Middle East and Ukraine. ICE gasoil futures, a key global benchmark, climbed as much as 4.2%, reaching levels not seen since April 9. Overall, diesel prices have surged more than 50% since June 18, significantly outpacing gains in crude oil prices during the same period. This rise in the cost of this crucial industrial fuel is intensifying inflationary concerns across the global economy.
The U.S. diesel crack spread, which represents the profit margin for refiners, surged to a record high of over $106 a barrel on September 1. This marks a substantial increase, as the spread had first breached the $100 mark in August. Goldman Sachs Group Inc. has more than doubled its forecasts for diesel refining profits, citing factors such as ongoing refinery disruptions and Ukrainian drone strikes on Russian plants. U.S. refineries are operating at approximately 97% capacity, and exports of diesel and related fuels have increased by about 28% compared to last year, leading to record-low seasonal inventories domestically.
The average retail price for diesel in the U.S. reached $5.652 per gallon, according to the Department of Energy/Energy Information Administration, marking its highest level since military action commenced against Iran in early March. This price is up 39.5 cents per gallon in the last two weeks alone. The current price is only about 16 cents shy of the all-time record of $5.81 per gallon set in June 2022. Low domestic inventories, coupled with surging exports and anticipated increased demand during the heating season and agricultural activities, are expected to keep upward pressure on diesel prices. Farmers, for instance, are expecting to spend over $40,000 on fuel this harvest season, roughly double their usual expenditure.
The primary reasons for the tightened global supply include disruptions in the Strait of Hormuz, damage to Persian Gulf refineries, and a wave of Ukrainian drone strikes on Russian plants. These regions collectively account for about one-third of global diesel production. The effective closure of the Strait of Hormuz has impacted the flow of crude oil, diesel, and other petroleum products, contributing to a 20% increase in global oil prices to approximately $86 a barrel. Russian refining capacity has been significantly affected, with an estimated 40% impacted by drone strikes, forcing Russia to suspend diesel exports.
