US Diesel Hits $5.69 a Gallon, Nearing April War Peak, as Global Refining Capacity Shrinks 10%

Since Iran and the U.S. traded fresh strikes this week, rattling Asian markets and pushing the 10-year Treasury yield past 4.80%, the pain has shown up somewhere ordinary Americans can't ignore: the diesel pump.

The national average retail price of diesel reached $5.688 a gallon on Tuesday, September 1, according to the American Automobile Association, as reported by Bloomberg. That's just a fraction below April's peak, which came during the early phase of the U.S.-Iran war, and it's closing in on the all-time record of $5.816 set in June 2022 during the energy crisis triggered by Russia's invasion of Ukraine.

Gasoline has climbed above $4 a gallon nationally, a level ZeroHedge notes carries its own political weight ahead of November's midterms.

The Center on Global Energy Policy at Columbia University, in an August 28 commentary by Tatiana Mitrova, Luisa Palacios and Daniel Sternoff, makes a distinction that gets lost in most retail-price coverage: Brent crude is trading around $90 a barrel, well below April's wartime peak of over $125. Crude itself isn't scarce.

What's scarce is the ability to turn that crude into diesel, jet fuel and gasoline. U.S. diesel cracks (the refining margin between crude and finished fuel) jumped over $100 a barrel in mid-August on top of an $85 WTI price, according to the Columbia analysis. Globally, finished transportation fuels are trading in the $150 to $190 per barrel range.

Bloomberg's NYMEX one-month heating-oil/crude spread breached $100 a barrel early Tuesday, surged to $108 overnight, and was trading at $104 early Wednesday morning, according to figures reported by ZeroHedge and Rigzone.

The American Petroleum Institute lays out why: the world has lost close to 10% of its fuel-making capacity, spread across three regions. Middle East refineries have taken drone-strike damage and Strait of Hormuz shipping disruptions. Russia, normally one of the largest diesel exporters, halted much of its export flow after Ukrainian strikes shut down several refineries. China sharply curtailed fuel exports earlier this year to protect domestic supply and has only recently started easing those limits. Combined, API says the world is processing roughly 5 million fewer barrels of crude per day than a year ago.

Goldman Sachs commodity analyst Daan Struyven put a similar number on it this week: global refinery runs are down 7 million barrels per day from last year, averaging nearly 6 million barrels per day below seasonal norms since March, according to Bloomberg's reporting via Rigzone and ZeroHedge. Goldman's analysts wrote in an August 28 note that "diesel remains at the epicenter of the rally."

Trump Presses Refiners. Can They Actually Move the Needle?

Earlier this week, President Trump summoned top U.S. refining executives to a closed-door meeting and pressed them to boost diesel and gasoline production, according to a White House official who spoke to Bloomberg on condition of anonymity. Trump made clear he wants lower pump prices before the midterms and asked executives directly how to increase capacity.

U.S. refiners are already running near maximum capacity, per Rigzone's reporting, and margins are close to record highs, meaning the profit incentive to run flat-out already exists. If refiners could squeeze out meaningfully more diesel at current utilization, the record crack spreads suggest they'd already be doing it. A White House meeting doesn't build new refining capacity or unwind Ukrainian strikes on Russian plants.

Refiners can adjust product yield between gasoline and diesel to some degree, and public pressure on executives ahead of an election creates incentive to prioritize domestic supply over export sales when possible.

One country has genuine spare capacity: China. Kelly Chen, a senior economist at DNB Carnegie, wrote in a Tuesday note cited by ZeroHedge that China is among the few nations with enough idle refining capacity to meaningfully ease the global squeeze. But Chen also said Beijing has little economic or strategic reason to bail out Western fuel markets.

Where This Lands Hardest

Rigzone flags a detail that matters for the midterms Trump is worried about: no state has a higher share of homes heated with oil than Maine, which is home to one of the most closely contested Senate races this fall. Heating oil is effectively interchangeable with diesel, and heating season starts within weeks.

U.S. diesel inventories are sitting near their lowest levels for this time of year in roughly three decades, a trend flagged in earlier reporting on the refinery squeeze. If the current trajectory holds and diesel breaks the June 2022 record of $5.816 a gallon, it would mark the highest diesel price in American history, right as harvest season and cold-weather demand both ramp up.