U.S. to Suffer Higher Oil Prices as it Produces Very Little Diesel

Rising gasoline prices dominate headlines, but diesel is the fuel sending a more troubling signal for the economy.

Diesel futures have climbed about 76% so far this year.

Diesel prices have surged due to the Iran conflict. Refinery outages in parts of the Middle East, reduced refining runs across Asia, and shipping disruptions around the Strait of Hormuz have squeezed supplies, Laura Sanicola reported for Barron’s Daily.

Diesel futures have climbed about 76% so far this year. At $3.74 a gallon, they are at their highest level since the fall of 2023.

Meanwhile, refining margins for diesel have jumped about $20 per barrel in just one week to roughly $44, according to Tudor Pickering & Holt.

Second-quarter diesel “cracks”—the difference between the price of crude oil and refined fuel—have risen about $22, the firm said.

Diesel fuels trucks, trains, ships, construction equipment and farm machinery, embedding its costs throughout the supply chain. Higher diesel prices therefore first appear in production and transportation costs before eventually reaching consumers.

Food prices are a clear example. US Department of Agriculture researchers have found that rising diesel prices push up retail prices for staples such as potatoes, apples and tomatoes through higher transportation costs.

Energy economist Philip Verleger estimates that disruptions tied to the conflict could remove 5% to 12% of global diesel supply.

US shale oil produces large amounts of gasoline but relatively little diesel, forcing refiners to compete aggressively for barrels that yield diesel. Mars crude from the Gulf of Mexico now trades nearly $10 a barrel above West Texas Intermediate (WTI) instead of its usual discount, improving prospects for refiners such as Valero Energy.