Diesel prices surged to an unprecedented $6.53 per gallon on Tuesday, despite a drop in benchmark crude oil prices, which recently fell to a two-week low.
By Wednesday, the national diesel average was just shy of that peak, sitting at $6.52 after a slight overnight decline. By comparison, just a year ago, the cost was $3.69 — before the onset of war in Iran, according to the American Automobile Association (AAA).
For context, Brent crude, the global oil standard, reached $97.36 a barrel on Tuesday, its lowest mark since September 8, and was priced over $100 in early trading on Wednesday, as reported by Reuters.
The Energy Information Administration (EIA) highlighted in a September 18 analysis that constrained global diesel supplies and high crude oil prices have contributed to the upward pressure on diesel prices recently.
Refiners’ margins are tracked through something known as the diesel “crack spread,” which represents the gap between wholesale diesel prices and the spot price of crude oil.
According to the EIA, a significant crack spread, coupled with elevated crude prices, is pushing retail diesel prices higher. Their projections indicate that the average diesel crack spread in the U.S. will remain above $2 per gallon until November before gradually decreasing through mid-2027, as noted by Lee Tucker from EIA media relations.
It’s worth mentioning that the crack spread serves as a gauge of profitability in diesel production and doesn’t directly reflect refiners’ total profits, Tucker explained.
Interestingly, the premium for European low-sulfur diesel, compared to Brent crude, has reached a record high of about $95 a barrel on Wednesday, following President Trump’s support for a potential U.S. diesel export ban, according to Reuters.
During the ongoing conflict in Iran, Europe has turned to U.S. diesel imports for support, the report noted.
Energy Secretary Chris Wright commented on this at an Economist event in New York, suggesting that a diesel export ban is not a viable solution. He explained that such a ban would lead to storage issues for excess diesel and would necessitate reductions in U.S. refining capacity, potentially escalating gasoline and jet fuel prices.
Wright also mentioned the administration is collaborating with refiners to boost diesel supply in a “simpler, voluntary, cooperative” approach, although he provided no specific details or decisions about that plan.
The administration is reportedly receptive to any strategies aimed at decreasing fuel prices and promises forthcoming policy announcements on the matter.
A White House official indicated that Trump is eager to see lower gas prices at the pump and is considering every available option.
In a related comment, Interior Secretary Doug Burgum cautioned that a ban could provoke retaliatory actions from other fuel-exporting nations, which might harm states like California.
Geoff Moody, a senior vice president at the American Fuel & Petrochemical Manufacturers (AFPM), expressed concern that a diesel export ban could backfire, resulting in diminished U.S. fuel production, tighter supplies, and higher prices for consumers, noting that such bans are historically avoided by administrations from both political parties.
He clarified the distinction between a diesel shortage and tighter supply levels, indicating that the current situation in the U.S. aligns with the latter category, which involves increased competition for available diesel.
Jason Hayes, a research fellow at the Heritage Foundation, similarly warned that discussions around a domestic diesel export ban could exacerbate supply issues.
The AFPM estimated that damaged refineries in the Middle East and Russia have contributed to a loss of about 10% of global refining capacity, complicating the supply landscape.
Additionally, they noted that compliance with the federal Renewable Fuel Standard has increased gasoline and diesel supply costs by as much as 40 cents per gallon this year.
From January to August, U.S. refineries produced an average of 5.1 million barrels per day of distillate fuel, the highest rate since 2019, according to the EIA’s analysis from September 18.
Meanwhile, distillate inventory levels, which encompass diesel and heating oil, dropped by 400,000 barrels the week ending September 18, landing 12% below the five-year average, based on preliminary EIA data.
Under normal circumstances, crude oil accounts for roughly 42% of diesel pricing, as Avery Vise, an industry expert, pointed out. Low domestic distillate inventories coupled with production issues abroad have created a unique, albeit likely temporary, market for diesel.
As a result, diesel prices have spiked about 70 cents higher than previous records set before September, whereas gasoline prices remain over 50 cents below their June 2022 highs.
Carriers that work directly with shippers tend to recover most of their increased fuel expenses through surcharges, but smaller carriers using freight brokers are feeling the strain more acutely, he added.
A typical over-the-road truck driver logs around 2,500 miles weekly, as noted by George O’Connor from the Owner-Operator Independent Drivers Association (OOIDA). He explained that each dollar increase per gallon in diesel results in an additional $400 in weekly operating costs.
That cost burden will likely fall on shippers as they grapple with the pressures to adjust their prices. Vise emphasized that the impact on food prices will be more pronounced compared to luxury goods or higher-end items, like furniture.
