US diesel prices are experiencing a significant surge, reaching their highest point since mid-2022 and approaching an all-time high. The nationwide average retail price for diesel has hit $5.69 per gallon, just shy of its April peak and its highest level since July 2022. This upward trend is largely attributed to the deepening US-Iran conflict, which has disrupted the Strait of Hormuz, and Ukrainian attacks on Russian refineries, both of which are constraining global fuel supplies.
The simultaneous shocks from these geopolitical events are exacerbating an already strained global refining complex, which is characterized by limited spare capacity. Goldman Sachs commodity expert Daan Struyven noted that global refinery runs are down by $7 million barrels per day compared to last year and have consistently averaged nearly $6 million barrels per day below seasonal norms since March. This reflects the severity of the supply constraints.
The rising diesel prices have significant economic implications, as diesel is crucial for freight, agriculture, construction, and heavy industry. Soaring costs quickly ripple through supply chains, leading to increased transportation and construction expenses, reigniting food inflation, and weakening consumer sentiment. This situation also intensifies margin pressure on small and medium-sized businesses.
The White House is actively addressing the issue, with President Trump recently summoning top US refining executives for a closed-door meeting. He urged them to increase diesel and gasoline production, especially as diesel approaches $6 per gallon nationally and gasoline rises above the politically sensitive $4 mark, ahead of upcoming midterm elections. However, the outlook for immediate relief is challenging, with DNB Carnegie senior economist Kelly Chen noting that China, one of the few countries with spare refining capacity, appears to lack the incentive to assist Western fuel markets.
The Bloomberg NYMEX one-month heating-oil/crude spread (HOCL1 Index) further illustrates the market pressure, breaching $100 per barrel early on Tuesday and surging to $108 overnight before trading at $104 early Wednesday morning. This reflects the premium being paid for heating oil relative to crude, signaling tight refined product markets. UBS analyst Justinus Steinhorst commented on the "choppy start to the month," with oil and yields rising and volatility increasing, following President Trump's downplaying of a new deal with Iran, which saw Brent crude slightly off its overnight highs of approximately $97.
