US diesel hits $6.51 a gallon, up 76% in a year

Refineries running at 97% capacity, leaving little room to boost output

About 80% of diesel powers freight transport, driving up shipping costs

Stockpiles running 13% below the five-year seasonal average

A diesel price sign is displayed at a gas station in Encinitas, California, on Wednesday (local time). [Reuters]
A diesel price sign is displayed at a gas station in Encinitas, California, on Wednesday (local time). [Reuters]

Diesel prices in the United States are surging far faster than gasoline — even as the country pumps more crude oil than any other nation on earth. The instinct might be to simply drill more, but the problem is not underground. America's refineries are already running at virtually full capacity, leaving almost no room to convert additional crude into diesel.

The deeper concern is what diesel means for the broader economy. Trucks haul groceries to supermarkets, farm equipment harvests grain, and construction machinery runs on diesel. A price spike at the pump does not stay there — it ripples into delivery costs, food prices and the cost of manufactured goods.

Reuters Breakingviews has assessed that while the US economy weathered the crude-oil shock from the Iran war better than expected, the rising cost of moving goods could now become the tipping point that destabilizes it.

According to the American Automobile Association, the national average retail diesel price stood at $6.51 per gallon on Monday — up 76% from a year earlier. Over the same period, gasoline rose 41% to $4.48 per gallon.

Americans consume far more gasoline than diesel — daily gasoline use runs around 9 million barrels, roughly three times diesel consumption. Yet of the $112 billion in additional fuel costs Americans have borne since the Iran war, $51 billion came from diesel alone. Despite accounting for a fraction of total fuel use, diesel has been responsible for nearly half of the added burden.

Data from the US Energy Information Administration show that as of Sept. 14, the national retail diesel price reached $6.285 per gallon — the highest nominal level since the agency began tracking the figure in 1994, and the highest in real terms since 2022.

Two wars are driving the surge. Disruptions to refinery operations in the Middle East, combined with Ukrainian strikes on Russian refining infrastructure, have tightened global diesel supply. A slowdown in Chinese refining activity has compounded the squeeze. The EIA said reduced refining activity in Russia, China and the Middle East is straining global middle-distillate supply.

The United States is the world's largest crude producer. So why not simply pump more oil and refine more diesel?

The answer is that diesel does not come straight out of the ground. Crude oil must be processed at a refinery before it becomes diesel, gasoline or jet fuel.

What the US is short of is not crude — it is refining capacity.

US refineries were running at 97% utilization as of Sept. 11, effectively at their operational ceiling. Middle-distillate output averaged 5.1 million barrels per day from January through August this year, the highest since 2019. Refiners have already pushed production sharply higher, yet the supply shortfall persists.

Reuters also noted that no major new refinery has been built in the United States in roughly 50 years. Constructing one can take up to a decade, meaning higher prices cannot quickly translate into greater capacity.

There is an added risk: if elevated prices lead refiners to defer routine maintenance, the result could be longer unplanned shutdowns down the road.

Stockpiles offer little cushion either.

EIA data show US middle-distillate inventories stood at 107.85 million barrels as of Sept. 11. Stocks typically build over the summer in preparation for winter demand, but this year they barely moved. At that point, inventories were 15.8 million barrels — or 13% — below the five-year seasonal average.

The EIA's outlook is equally grim. The agency projects US middle-distillate inventories will fall below 100 million barrels during September and remain below the bottom of the five-year range for much of 2027.

Because the US is also the world's largest diesel exporter, some politicians have called for keeping American fuel at home. President Donald Trump said Tuesday he was considering restrictions on diesel exports.

But cutting exports would not be a simple fix. With refining capacity already tight globally, a US pullback could push international diesel prices even higher, invite retaliatory measures from trading partners and reduce the overall efficiency of the supply chain.

The particular danger of rising diesel prices lies in their pass-through effect.

About 80% of US diesel consumption — roughly 3 million barrels a day — goes to transportation. Trucking companies operate on thin margins and have little ability to absorb higher fuel costs. Knight-Swift, one of the largest US trucking firms, posted an operating profit margin of just 6% last quarter.

Last year, the average cost of operating a truck in the US was $2.34 per mile. Diesel has risen $2.81 per gallon over the past year, from around $3.70 to $6.51. Assuming fuel efficiency of 6 miles per gallon, that adds roughly 47 cents per mile in fuel costs alone.

Those costs ultimately pass through shippers to consumers. Supermarket groceries, online shopping deliveries, farm produce and manufactured goods all fall within the reach of rising diesel prices.

Reuters cited Amazon as an illustration: the company spent $27.9 billion on delivery in a single quarter — more than the operating profit its retail business generated over the same period. The figure underscores how directly diesel costs feed into retail expenses and consumer prices.

The US economy has so far absorbed the crude-oil shock from the Iran war with surprising resilience. But securing crude oil and converting it into the right fuels to move goods across the country are two different problems.

It is not the oil supply but the refining bottleneck — not gasoline but diesel — that has become the new weak link in the American economy. As Reuters put it, "the US economy has shown remarkable resilience to the oil shock, but the cost of moving things could be the tipping point."


sjy@heraldcorp.com