WASHINGTON, United States — U.S. diesel prices have crossed $6 a gallon for the first time, adding a new cost shock to trucking, agriculture and other industries that depend heavily on diesel fuel.
The national average rose above the $6 mark on Thursday, according to GasBuddy, while AAA reported an average of about $6.06 a gallon on Friday. The price is more than 60% above the level recorded before the U.S.-Israeli war with Iran began in late February.
The increase comes as disruptions to oil production, refining and shipping tighten supplies across global energy markets. Brent crude and U.S. West Texas Intermediate both moved above $100 a barrel this week, increasing pressure on the cost of refined fuels.
Diesel costs spread through the economy
Diesel is central to the movement of goods across the United States. Trucks, trains, ships and heavy equipment rely on the fuel, while farmers use diesel-powered machinery to plant and harvest crops.
That makes diesel prices particularly important for supply chains even for consumers who do not use diesel vehicles themselves.
Higher fuel costs can initially be absorbed by trucking companies, freight operators and retailers. But those costs can eventually reach consumers through higher transportation charges, fuel surcharges and prices for goods.
Food is particularly exposed because diesel powers farm equipment and many of the trucks and other vehicles used to move agricultural products.
The impact can be especially significant for products that require frequent transportation or refrigeration.
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Global supply disruptions drive the surge
The latest price increase is closely tied to disruptions in global oil and refined-fuel markets.
The conflict involving the United States and Iran has severely disrupted shipping through the Strait of Hormuz, a critical route for global energy supplies. Vessel traffic through the waterway has fallen sharply during the conflict, increasing concerns about the availability of crude oil and refined products.
The supply problem has also been compounded by disruptions to Russian refining capacity following repeated Ukrainian attacks. Russia has restricted some fuel exports, reducing the amount of diesel available to international markets.
China’s restrictions on fuel exports have added another constraint, further tightening supplies of refined petroleum products.
The result has been a particularly sharp increase in diesel prices compared with crude oil.
U.S. inventories remain tight
U.S. diesel inventories are also providing little protection against further supply disruptions.
Government data cited in recent market analysis put U.S. diesel inventories at about 106.3 million barrels, roughly 13% below the five-year average. Refiners have been operating at high utilization rates, but rebuilding inventories could become more difficult as seasonal refinery maintenance begins.
Refining margins have also surged. The diesel crack spread, a measure of the difference between refined diesel prices and crude oil costs, reached a record level of about $112 a barrel on Thursday, according to market data cited by Reuters.
The combination of low inventories, restricted international supply and strong demand is leaving the market particularly sensitive to additional disruptions.
Freight operators face higher operating costs
For trucking companies and other freight operators, fuel is one of the largest variable operating expenses.
The rapid increase creates pressure on companies whose existing contracts do not immediately allow them to pass higher fuel costs to customers.
As contracts are renegotiated, fuel surcharges can become more widespread. That can increase the cost of transporting manufactured goods, food, building materials and other products.
The pressure is not limited to road transportation. Diesel is also used by agricultural machinery, industrial equipment, rail networks and maritime operators.
That gives the fuel-price increase a broader economic effect than a typical increase at the gasoline pump.
Inflation risks are increasing
The diesel surge is occurring alongside a renewed rise in crude oil prices, creating a new inflation risk for the U.S. economy.
Brent crude reached more than $107 a barrel earlier this week, while WTI also moved above $100. Prices later declined on Friday as reports emerged of possible diplomatic efforts concerning shipping through the Strait of Hormuz, but both benchmarks remained on course for substantial weekly gains.
Economists are also watching whether higher energy costs begin to affect monetary policy.
The increase in diesel and other fuel prices could raise transportation and production costs before those effects appear fully in consumer inflation data. A U.S. economist cited by MarketWatch said the surge in diesel prices could strengthen the case for tighter Federal Reserve policy at its upcoming meeting.
Outlook depends on supply disruptions
The duration of the diesel price surge will depend heavily on the war in the Middle East, shipping through the Strait of Hormuz and the ability of refiners to restore inventories.
Additional disruptions could push diesel prices higher, while a sustained improvement in shipping conditions and crude-oil supplies could ease pressure on the market.
For now, the record above $6 a gallon marks a significant new cost challenge for U.S. businesses and consumers.
The immediate effect will be felt most directly by companies that move goods or operate heavy equipment. If elevated prices persist, however, the impact could spread through transportation contracts, food distribution and retail prices, adding another source of inflationary pressure across the economy.
Reporting Credit: U.S. Energy Information Administration — petroleum inventories and energy-market data; AAA — U.S. national retail diesel and gasoline price data; GasBuddy — national retail fuel-price tracking; International Energy Agency — global oil and refined-product supply analysis.
