The fuel that hauls America's freight has never cost more. GasBuddy put the national average diesel price at $5.85 a gallon on Thursday, edging past the June 2022 record of $5.82. A year ago, drivers were paying around $3.70.
A squeeze from three directions
Diesel has been grinding higher all year. The national average has not dipped below the $5 mark since mid-July and is up more than 50% since late February, when the confrontation between the US and Iran began choking tanker traffic through the Strait of Hormuz. In normal times, close to 900,000 barrels of diesel and another 350,000 barrels of jet fuel leave the Gulf by sea each day, about a tenth of global seaborne diesel supply.
Russia has made a tight market tighter. Moscow banned diesel exports through September 30 after Ukrainian drone attacks knocked out a chunk of its refining capacity, and the country is now importing fuel from India, Kazakhstan and Belarus, NPR reported. Asian refiners have little spare product to send west.
The third leg is crude itself. WTI ended the week at $91.48 and Brent at $96.28, up roughly 9% in crude's strongest week since mid-July, after US strikes hit seven sites on Iran's southern coast and projectiles struck two tankers near the strait.
Inventories near historic lows
There is not much cushion left. EIA figures put US distillate inventories at 104.2 million barrels as of August 28, the lowest late-August reading since 1982. East Coast stocks fell to 19.3 million barrels, a record low. The week's small build of 0.8 million barrels barely dents the deficit.
Refiners are trying. Plants ran at close to 98% of capacity last week, rates last seen in 2018, and several have pushed back fall maintenance to keep units running. The incentive is obvious: diesel futures traded at $4.54 a gallon on Friday, about $191 a barrel, giving refiners a premium of nearly $100 over the cost of WTI crude.
The trickle-down
"Diesel is the blood of the economy. It's the engine in which you move goods, food, agricultural goods from farm to supermarket," Jaime Brito, head of energy at Dow Jones, told NPR.
The reach is hard to overstate. Roughly nine in ten of the country's 500,000 school buses burn diesel, and so does about three quarters of its farm equipment. Patrick De Haan, who leads petroleum analysis at GasBuddy, warned that higher freight costs work their way into store shelves: "There's going to be a trickle down."
The timing stings, too. Fall harvest is ramping up across the Midwest, and heating oil season is next. Heating oil is nearly identical to diesel, so homeowners in the Northeast will feel the same squeeze this winter.
What to watch
Russia's export ban runs through the end of September, and any extension would keep global supply short. In the Gulf, tanker traffic remains well below normal since strikes returned to the Strait of Hormuz in late August. Unless crude backs away from $90 or Hormuz flows recover, analysts see little relief at the pump before winter.