US diesel prices hit record high as supply strains mount

Diesel prices in the United States climbed to a record high Friday, raising costs for freight, farming and household budgets as wars in the Middle East and Ukraine collide with a global shortage of refinery capacity.

The average U.S. price for a gallon of diesel reached $5.85, up from $5.78 on Thursday, according to AAA. The price is also far above the $3.71 average from a year ago and above the previous peak reached after Russia’s full-scale invasion of Ukraine, the BBC reported.

The latest rise began in late February after the start of the war involving Iran, which drove up wholesale oil prices. The BBC reported that supplies have been limited by Iran effectively closing the Strait of Hormuz, the narrow waterway south of the country through which about a fifth of the world’s oil is transported.

Russia’s war in Ukraine has added further pressure. Russia has long been the world’s second-largest exporter of diesel after the United States, but Ukrainian drone strikes on Russian refineries have reduced production. Facing a possible domestic shortage, Russia recently extended a diesel export ban through the end of September, further tightening global supplies.

That shift has benefited U.S. refiners, whose diesel products are fetching higher prices. U.S. diesel exports hit an all-time high last month as markets adjusted to the loss of Russian supply. But it has also pushed transport and production costs higher across the economy.

Diesel powers much of the commercial transport system, including trucks, trains, boats, buses, farm machinery and construction vehicles. Those costs can flow quickly into consumer prices.

“It’s highly likely that transportation companies are not going to be able to absorb 100% of these cost increases,” said Joseph Brusuelas, chief economist at RSM U.S. “Consumers should be prepared to pay higher inflation for anything that requires being shipped.”

Brusuelas said groceries could be hit especially hard because many supermarkets are already operating on thin margins amid rising beef costs. Higher diesel prices could also interrupt a recent trend of stabilizing inflation for food eaten at home.

Seasonal demand is adding to the strain. Farmers around the world use diesel-powered equipment for harvesting and planting, while colder weather in the Northern Hemisphere typically increases demand for distillate fuels, the category that includes diesel and heating oil.

The pressure is also being felt in the United Kingdom. The Guardian reported that the price of all fuels bought by farmers rose by between 10p and 14p a litre in just a few days, according to Alex Harrison, a fuel buyer at Fram Farmers, a not-for-profit farmer-owned cooperative. She called the increase “an astronomical amount.”

Red diesel, used for agricultural vehicles and machinery and taxed at a lower rate than standard diesel, is now about £1.10 a litre, The Guardian reported. The average price of diesel for UK motorists reached 183.5p a litre Thursday, up from 164.5p in mid-July, according to government data cited by the newspaper.

“This latest spike has really caught everybody by surprise and hit them quite hard because it’s been such a large spike and because of the time of year,” Harrison said.

In the United States, prices vary widely by region. The BBC reported that Western states face higher costs because of tax differences and distance from U.S. oil producers. In Washington state, average diesel prices were $6.81 a gallon, compared with $5.03 a year ago.

President Donald Trump pressed refiners at a White House meeting Tuesday on ways to ease costs for consumers. “This was not a ‘drill, baby, drill’ meeting,” White House deputy press secretary Taylor Rogers said. “This was a ‘refine, baby, refine’ meeting.”

It was unclear Friday whether companies had made firm commitments to increase refinery output, which is already near capacity. The BBC also reported that Trump has pledged to “substantially lower Gas Prices for all Americans” through an oil deal with Venezuela. A U.S. official told CBS News that the U.S. government would retain 55% control of a joint venture with an experienced private operator in Venezuela.

Fuel costs have become a growing political concern ahead of November’s midterm elections. Recent Reuters/Ipsos polling cited by the BBC found Trump’s approval rating at 33%, with 31% of Americans approving of the conflict.