US diesel prices have surged to $5.688 a gallon, marking the highest level since April, as global conflicts continue to strain supply chains. This price point, recorded by the American Automobile Association (AAA) on Tuesday, is just below the April peak and not far from the record of $5.816 set in mid-2022 during the energy crisis following Russia's invasion of Ukraine.
The renewed increase in diesel prices is largely attributed to the deepening US-Iran conflict, which has disrupted the Strait of Hormuz, and Ukrainian attacks on Russian refineries, limiting exports from a major fuel supplier. These simultaneous shocks are impacting the global refining complex, which already suffers from limited spare capacity. UBS analyst Justinus Steinhorst noted that President Trump's downplaying of hopes for a new deal with Iran contributed to rising oil and volatility.
The implications of these high diesel prices are significant, as diesel is central to freight, agriculture, construction, and heavy industry. Soaring prices quickly ripple through supply chains, leading to increased transportation and construction costs, reigniting food inflation, and weakening consumer sentiment. This also intensifies margin pressure on small and medium-sized businesses.
Goldman Sachs commodity expert Daan Struyven highlighted that global refinery runs are down by 7 million barrels per day from last year, averaging nearly 6 million barrels per day below seasonal norms since March. Kelly Chen, a senior economist at DNB Carnegie, indicated that China is one of the few countries with enough spare refining capacity to potentially help alleviate the supply crunch. ING's commodity strategists anticipate that middle distillate cracks will remain highly elevated and volatile, especially as seasonal demand strengthens.
