Diesel prices in the United States have once again soared to unprecedented levels, with the global energy supply chain under intensifying strain and a recent attack on a Russian refinery amplifying worries over refined fuel availability.

On September 21, data from the American Automobile Association showed the national average diesel price climbing to $6.505 per gallon, crossing the $6.50 threshold for the first time. Just last Friday, the retail price had already risen to $6.45 per gallon, having previously breached $6 for the first time; now, that milestone has been shattered as well.

The ripple effects of geopolitical conflict on energy supplies continue to widen. According to reports on September 20, the General Staff of the Armed Forces of Ukraine said its forces launched strikes on the Moscow Oil Refinery in the Moscow region during the early hours of that day.

Ukraine reported a large-scale fire at the refinery complex, with the AVT-6 primary refining unit and integrated crude processing facilities among the targets hit. The Ukrainian military described the Moscow Oil Refinery as one of Russia's largest refining operations, with an annual crude processing capacity of approximately 12 million tonnes, producing gasoline, diesel, aviation fuel, heavy fuel oil, and other petroleum products.

With the US midterm elections approaching, record diesel prices are adding fresh cost pressures on agricultural states and regions reliant on heating oil, making energy costs a pivotal factor influencing American consumers and businesses alike.

Global diesel markets tighten as Middle East disruptions compound Russian refinery strikes

The core driver behind the latest surge in diesel prices remains rooted in supply. Since the outbreak of the Middle East conflict, energy shipments transiting the Strait of Hormuz have faced severe disruptions, with crude exports from the region yet to return to pre-conflict levels, thereby constraining feedstock supplies for global refineries.

Meanwhile, the strike on the Moscow Oil Refinery has further underscored the fragility of the global refining system. Bloomberg data indicates that, amid supply disruptions across the Middle East and Russia, global diesel futures and refining margins rose to record highs last week. The US heating oil crack spread once spiked to $117 per barrel, marking the highest level since Bloomberg began tracking the data in 2009.

The tightening supply picture is rapidly pushing US diesel prices higher. Since September, diesel prices have climbed by more than 87 cents and have surpassed the previous peak set in 2022. Goldman Sachs recently cautioned that, with global supply constraints persisting, diesel prices still hold further upside potential.

The rapid ascent of diesel costs is set to further elevate transportation, agricultural, and heating expenses, adding to US inflationary pressures. With crude supply disruptions, strained refining capacity, and tight refined product inventories, the supply-demand imbalance in the diesel market continues to intensify.

Diesel price hikes transmit through transportation, agriculture, and inflation

Although most American consumers do not directly use diesel, the fuel is widely employed across trucking, agricultural machinery, power generators, marine shipping, rail, and residential heating systems. Its price increases ripple through transport and production costs into a broad spectrum of goods and services.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said over the weekend that US inflation remains too high, with price pressures having spread from the energy sector to a wider range of items. The Fed raised its benchmark interest rate by 25 basis points last week, the first increase since 2023, and the continued rise in energy prices is further complicating the outlook for policy decisions.

High fuel costs have also triggered discussions over whether Washington should restrict diesel exports to bolster domestic supply. However, US Interior Secretary Doug Burgum argued that an export ban would not effectively lower domestic prices and expressed reservations about employing such a policy tool.

The Washington-based Institute for Progress noted that, when measured on an inflation-adjusted real basis, current diesel prices remain below the historical peak of 2022. Yet, from a nominal price perspective and considering the recent pace of gains, diesel costs are climbing quickly, exerting more immediate pressure on transportation, agriculture, and heating demand.

In its latest report, Goldman Sachs pointed out that, compared to diesel, gasoline prices may currently present a larger trading opportunity for investors. As diesel prices continue to march higher, the tension in energy markets could also spill over into other refined product segments.