US Diesel Hits Record High Amid Tight Global Supply

U.S. retail diesel prices averaged $6.29 per gallon as of September 14, marking the highest nominal price since the U.S. Energy Information Administration began tracking the data in 1994. This record high reflects a combination of elevated crude oil costs and significant increases in refinery margins, known as crack spreads. The price surge is not merely a function of raw material costs but is heavily influenced by the profitability of converting crude oil into distillate fuel.

The diesel crack spread, calculated by subtracting the spot price of crude oil from the wholesale price of diesel, has widened substantially. This metric serves as a direct proxy for refinery margins. When crack spreads are high, refiners earn more per gallon, which is then passed down to consumers. The current environment features a high crack spread layered on top of elevated crude oil prices, creating a compounded effect on the final pump price.

Global Supply Constraints Drive Prices

Global distillate supplies remain tight due to reduced refining activity in key production regions, including Russia, China, and the Middle East. This reduction in foreign production has elevated international diesel prices, increasing the cost for the United States to import fuel. Simultaneously, higher global prices have boosted demand for U.S. diesel exports, pulling domestic supply away from the local market and further tightening availability.

The interplay between import costs and export demand has created a feedback loop that sustains high prices. As international benchmarks rise, U.S. exporters find it more lucrative to ship fuel abroad rather than sell domestically. This dynamic reduces the volume of diesel available for U.S. consumers and logistics providers, contributing to higher on-road and rail freight costs for goods across the economy.

US Refineries Operate Near Capacity

Domestic production has reached its highest level since 2019, with U.S. distillate output averaging 5.1 million barrels per day between January and August. Refineries are operating at near-maximum capacity, with utilization rates hitting 97% in the week ending September 11. Despite this high level of activity, the additional production has not been sufficient to lower prices or build significant inventories.

Inventories Remain Below Seasonal Norms

U.S. distillate inventories stood at 15.8 million barrels in the week ending September 11, which is 13% below the five-year seasonal average. Historically, inventories build during the summer months, but this year’s levels have remained flat. The combination of high net exports and steady consumption has prevented stockpiles from recovering, keeping refining margins elevated.

According to the September Short-Term Energy Outlook, global distillate production is expected to remain below last year’s levels in the coming months. This forecast suggests that U.S. net exports will stay high, inventories will remain low, and prices will remain elevated. The sustained tightness in supply continues to pressure businesses that rely on diesel for transportation and heating, particularly in the northeastern United States.