US diesel futures surge above $5 a gallon amid supply disruptions

US diesel futures crossed the $5 per gallon threshold on September 10, hitting $5.03 on the New York Mercantile Exchange. That’s the highest level since April 2022, when the initial shock of Russia’s invasion of Ukraine sent energy markets into a panic.

National average retail diesel prices are even uglier, hovering between $5.94 and $5.98 per gallon in early September. Those numbers are flirting with the all-time records set during the 2022 energy crisis.

Where the barrels went

The supply picture is startlingly tight. US distillate inventories are projected to fall below 100 million barrels this month, a level the country hasn’t seen since 2003.

The ongoing US-Israel-Iran conflict has created transit risks in the Strait of Hormuz, a chokepoint that handles roughly 20% of global oil flows.

Meanwhile, Ukrainian drone strikes on Russian refineries have done enough damage that Moscow extended its diesel export ban through at least September 30. European buyers who once relied on Russian diesel barrels are now competing with Asian and African importers for the same shrinking pool of alternatives.

US refiners have responded by cranking up output. Distillate production reportedly averaged 5.3 million barrels per day in July.

Who wins, who loses

Refining companies are the obvious beneficiaries of this environment. When the spread between crude oil input costs and refined product output prices widens, refiners’ margins expand.

On the losing side, trucking and logistics firms face the most direct impact. Diesel is typically their largest variable cost. The 2022 spike drove a wave of small trucking company closures, and a prolonged period above $5 wholesale could trigger similar consolidation.

Airlines face a related problem. Jet fuel and diesel are both middle distillates, refined from the same portion of the crude oil barrel. When diesel inventories tighten, jet fuel prices tend to follow.

Agricultural costs are another pressure point. Farming operations rely heavily on diesel for equipment, and the timing of this spike coincides with the fall harvest season in major producing regions.

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