US Diesel Price Up 53 Percent, Hits 5.62 Port
Gallon
The cost of the fuel, used in farm machinery,
trucks and other heavy equipment, has surged because of the war in Iran and Ukrainian
attacks on Russian refineries.
·
U.S. diesel prices have surged: The
average diesel price reached $5.62 per gallon, up 53% from a year
earlier and close to the 2022 record of $5.82.
·
Farmers face a major cost shock: Iowa
farmer Randy Madden expects to spend more than $40,000 on diesel during
the harvest season—about twice his normal expenditure.
·
Diesel is an economic “workhorse”: Unlike
gasoline, which is primarily a consumer fuel, diesel powers farm machinery,
trucks, trains and heavy equipment. Higher diesel costs therefore feed into
the prices of food, freight and other goods and services.
·
Global supply shortage: The key
problem is a shortage of diesel and refining capacity, rather than
simply high crude-oil prices. Refineries must convert crude into diesel,
gasoline, jet fuel and other products.
·
Russian refining hit by Ukraine attacks: Damage
to Russian refineries has sharply reduced processing capacity. Russian
refineries were processing about 3.9 million barrels per day, down from
5.3 million a year earlier. Around 40% of Russian refining capacity has
reportedly been affected by drone strikes, forcing Moscow to suspend diesel
exports.
·
Strait of Hormuz disruption worsens the squeeze: The
effective closure of the Strait of Hormuz has restricted the movement of crude
and petroleum products. About one-fifth of global crude shipments
normally pass through the waterway, while global oil prices have risen about 20%
to around $86 a barrel.
·
Middle East refining has fallen: Middle
Eastern refineries are processing about 8 million barrels per day in 2026,
around 1.6 million barrels per day below 2025 levels.
·
U.S. refineries are running extremely hard: American
refineries are operating at roughly 97% of capacity. U.S. diesel and
related-fuel exports are up about 28% year-on-year, while domestic
inventories have fallen sharply.
Refiners
are the big winners
·
Refinery margins have exploded. When crude costs
around $70 a barrel, refiners typically earn $20–$30 per barrel on
diesel.
·
Current margins are reportedly approaching $90
per barrel.
·
Companies such as Valero Energy and Marathon
Petroleum reported roughly doubled fuel-processing margins in the second
quarter compared with a year earlier.
Farmers
and truckers bear the cost
·
Farmers are being squeezed by higher expenses for diesel,
fertilizer, seed and equipment, often after taking operating loans based on
lower expected costs.
·
Smaller trucking operators have less ability to
pass fuel increases on to customers than large logistics companies, putting
pressure on their profit margins.
·
Ultimately, higher transportation and agricultural
costs can translate into higher consumer prices.
Why the
U.S. cannot quickly increase diesel production
·
The last new U.S. refinery was built in 1977.
·
New refineries require billions of dollars and
years of construction, while investors face uncertainty over long-term
fossil-fuel demand because of electric vehicles.
·
China could potentially increase fuel exports, but
it has restricted refinery operations to protect domestic supplies.
India and
Nigeria could become more important
·
India is emerging as one of the few countries
adding significant refining capacity, with a new refinery beginning
operations in July.
·
Nigeria's Dangote refinery has
increased crude-processing capacity by 25% and plans to double its overall
capacity by 2028.
·
Nigeria's seaborne petroleum-product shipments
surged to 350,000 barrels per day in Q2 2026, compared with only 46,000
barrels per day in 2023.
Bottom line: The
diesel crisis is becoming a global inflation problem. Disruptions to
Russian and Middle Eastern refining, reduced oil flows through Hormuz and
depleted inventories are creating a supply squeeze. With U.S. refineries
already operating near maximum capacity, farmers, truckers and consumers are
likely to absorb much of the resulting cost, while refiners enjoy
exceptionally high margins.
When
Randy Madden saw the way diesel prices were rising, he decided to delay purchasing
the fuel that powers his 3,000-acre farm in Iowa.
Except
prices are at around the same level as when he made that decision in May.
Now,
going into harvest season, he expects to spend more than $40,000 on fuel — roughly
double what he typically pays from late summer through the end of the year.
“The
volatility and the price is coming at a very bad time,”
he said.
The
average price of diesel in the United States was $5.62 a gallon on Wednesday, 53
percent higher than a year earlier, according to the AAA motor club. Because fuel
supplies were disrupted after the United States and Israel went to war with Iran,
diesel prices are now hovering close to a record high and could drive up prices
of many other goods and services.
Diesel
powers a vast chunk of America's economy. It fuels equipment on farms like Mr. Madden’s,
as well as trains, trucks and other heavy machinery. As prices climb, businesses
often have to pass on that higher cost to their customers.
“Gasoline
is mostly a consumer fuel, used for driving, whereas I would characterize diesel
as the workhorse fuel used mostly by the corporate sector and small businesses,”
said Daan Struyven, a Goldman Sachs commodities analyst.
The
last time U.S. diesel prices rocketed up was in 2022 after Russia invaded of Ukraine,
hitting a peak of $5.82 a gallon.
This is a global crunch.
To
understand why diesel prices are rising, it’s important to understand the big picture.
There is simply not enough diesel available to meet the world’s needs.
Refineries
produce diesel, gasoline, jet fuel and other fuels by “cracking,” or heating, crude
oil. The United States and China have most of the world’s refining capacity, followed
by countries like Russia and India.
But
Russia’s ability to make diesel has been severely hamstrung because Ukraine has
damaged many of its refineries. In July, Bank of America analysts said Russian refineries
were processing around 3.9 million barrels per day, down from 5.3 million barrels
a year ago. That has forced Russia to suspend diesel exports.
“We
estimate that now 40 percent of Russian refining capacity has been impacted by drone
strikes,” said Debnil Chowdhury, who tracks the refining
business for S&P Global. “And the reason that that’s important is it’s a global
market.”
The
effective closure of the Strait of Hormuz, the narrow waterway through which about
a fifth of the world’s crude oil is shipped, has also limited the flow of crude
oil, diesel and other petroleum products. As a result, the global oil price has
climbed around 20 percent, to about $86 a barrel.
The
volume of crude oil refined in the Middle East has dropped to about eight million
barrels a day in 2026, down 1.6 million barrels a day from 2025 levels, S&P
Global analysts said in an Aug. 1 report.
U.S.
refineries have made up for some of that shortfall by operating at around 97 percent
of their capacity, according to the Energy Information Administration. Exports of
diesel and related fuels are up by around 28 percent compared with last year and
U.S. inventories of those fuels have fallen sharply.
Higher prices benefit refineries
but hurt buyers.
There’s
one clear winner from higher diesel prices: refineries that are still able to sell
fuel.
When
oil is trading at a modest $70 a barrel, refineries typically earn $20 to $30 a
barrel on the diesel they sell, Mr. Struyven of Goldman
Sachs said. Now, U.S. refineries are earning close to $90 for every barrel of diesel.
In
earnings reports for the second quarter, firms like Valero Energy and Marathon Petroleum
said their profit margins on turning a barrel of crude into fuels have roughly doubled
from a year earlier.
But users like farmers and
truckers are hurting.
Farmers
need operating loans every year to cover the cost of equipment repairs, seed, fertilizer
and fuel.
John
Boyd, a founder of the National Black Farmers Association, said many farmers did
not budget for bigger expenses when taking out their loans. Higher costs for fuel
and other items have strained budgets and driven some farmers he knows to the brink
of losing their properties.
“These
are generational farmers going under,” said Mr. Boyd, who lives in Boydton, Va.
The
trucking industry has also been affected. Large logistics companies are typically
able to pass on all or most of their higher fuel costs to customers but smaller
operators or drivers who operate independently may not be able to do so.
“It
really just eats into your operations because you basically break it out into what
is my cost per mile traveled,” said Zach Miller, vice
president of government affairs at the Trucking Association of New York. “What’s
left over is your profit margin.”
Producing more diesel won’t
be easy.
The
last U.S. refinery was built in 1977, in Louisiana, according to the Energy Information
Administration. Since then, the industry has mostly invested in existing refineries
rather than building new ones.
Building
these hulking industrial facilities takes years and costs billions of dollars. Because
refineries are built to operate for many decades, investors want to know that demand
for fossil fuels will remain strong for a long time. But nobody can predict demand
over the next couple of decades with any certainty given the rise of electric vehicles,
including trucks.
Even
if no new refineries are built, the supply of diesel could increase if China decided
to export more fuel, Mr. Struyven said. But Chinese policymakers
have placed restrictions on its refineries since the war began to make sure the
country has enough fuel to meet domestic demand.
While
refining capacity growth has slowed in most countries, most of the new growth is
now coming from developing countries like India where a new refinery started in
July, Mr. Struyven said.
In
Nigeria, a major oil producer, the Dangote Petroleum Refinery has recently increased
its crude processing capacity by 25 percent and plans to double its refinery’s total
capacity by 2028. It’s helped push seaborne petroleum shipments from the country
to 350,000 barrels a day in the second quarter of 2026, a jump from an annual average
of 46,000 barrels a day in 2023, according to the Energy Information Administration.