Diesel Prices Create Tension in the U.S.
Diesel prices have become a significant concern across the United States, particularly for the Trump administration. Recent data from the American Automobile Association (AAA) indicates that average prices are about $6.28 per gallon, effectively doubling compared to last year. This surge is impacting farmers, truck drivers, and nearly every business reliant on the transport of goods. The reasons behind this spike aren’t particularly surprising: a global refining shortage worsened by attacks on Russian refineries in Ukraine, ongoing disruptions due to the Iran conflict, and American refineries operating at full capacity for an extended period, which isn’t a sustainable scenario.
In an effort to alleviate some of these pressures, President Donald Trump has brokered a deal with Russian President Vladimir Putin. The agreement entails Russia supplying over 300,000 metric tons of diesel—equivalent to around 2.25 million barrels—to U.S. and global markets this month, with additional shipments planned for November and December. However, future volumes hinge on the state of Russia’s refining capabilities, which have been adversely affected by months of Ukrainian drone strikes.
U.S. refineries have been running at or near capacity since March, leaving distillate inventories precariously low and crack spreads unusually wide. With the fall turnaround season approaching, this intense operation isn’t viable in the long run: equipment depreciation, maintenance lapses, and the lack of extra capacity are significant concerns. Bringing in more refined products, even temporarily, could allow refiners a much-needed breather to carry out essential maintenance without pushing the system to its limits.
Nonetheless, there are doubts about Russia’s ability to fulfill its commitments. Insights from the industry suggest that even the initial shipment of 300,000 tons may require restarting damaged units. Larger future shipments would necessitate a sustained recovery of the affected plants, along with effective logistics in light of sanctions and insurance hurdles. It would be quite unexpected if Russia were able to meet its promises under these circumstances.
And here’s where things get complicated: Russia’s capacity to deliver hinges on Ukraine and President Volodymyr Zelenskyy’s adherence to the “energy ceasefire” announced by Trump. Zelenskyy’s initial response indicated surprise at the announcement, although he later revised his statement after acknowledging he was informed. Relying on both Zelenskyy and Putin to uphold any agreements amid ongoing conflict might be a bit naive.
If, by some chance, the ceasefire holds and shipments arrive as intended, the immediate impact on U.S. prices will likely be limited and short-lived. The October shipment alone represents less than a single day’s diesel demand of 2.9 million barrels a day in the U.S. The upcoming volumes may be more significant, but unless they’re sustained over time, their effect could remain minimal. Considering Ukraine has aggressively targeted Russia’s refining sector for over a year now, can we really expect Zelenskyy and his European allies to indefinitely support a U.S.-led initiative? Only time can provide clarity on that front.
Visible relief at the gas stations before the mid-term elections could prove important politically and economically. Yet, with only three weeks to go until Election Day, achieving such results seems unlikely—a bit unrealistic, to be honest. After the election, the same challenges—unsustainable utilization rates, low inventories, and the lack of new domestic refining capacity—will persist. While temporary imports and sanctions waivers can offer some short-term respite, they cannot replace the need for lengthy processes like permitting and constructing new facilities. Furthermore, they don’t resolve the ongoing conflicts that are at the heart of this crisis.
If new diesel supplies and the proposed energy truce are maintained, consumers in the U.S. might finally see some reprieve. However, if any key elements of the deal falter, the strain on American refineries will only intensify. Regardless of what happens, the underlying issue remains: the U.S. and the global market require greater refining capacity than what current geopolitical landscapes and policies permit, and two ongoing wars have stripped away any buffers in the market. Something will have to change.
