US diesel nears record $5.816 as refinery attacks tighten supply

US diesel prices climbed to $5.783 a gallon Wednesday, within a cent of the record, as refinery attacks in the Middle East and Russia squeeze refined-product supply harder than crude and feed inflation that keeps the Federal Reserve hawkish.

"If the current rally continues, diesel could break the record around Labor Day," said Patrick De Haan, head of petroleum analysis at GasBuddy. The national average, per AAA data, sits just below the $5.816 peak set in June 2022, when Russia's invasion of Ukraine first upended global fuel markets.

Brent crude futures rose 0.6 percent to $91.05 a barrel Tuesday while West Texas Intermediate gained 1 percent to $86.59, after President Donald Trump threatened further strikes against Iran following the first direct exchange of attacks in a month. Yet the pain is concentrated downstream: Goldman Sachs more than doubled its 2026 diesel refining margin forecast to $63 a barrel in the US and $49 in the EU, from $27 and $19, because global refinery outages run 60 percent above seasonal norms while refined-product inventories keep falling.

The stakes extend beyond the pump. Diesel feeds transportation, agriculture and heating, so the surge complicates the Fed's inflation fight just as the Trump administration faces rising living costs before November midterm elections. Fed Chair Kevin Warsh said that unless underlying inflation is confirmed returning to the 2 percent target fast enough, "there is still work to be done," keeping rate policy hawkish.

Refined products bear the brunt of the conflict

The supply shock hits refined products far harder than crude. Persian Gulf crude exports have recovered to 70-80 percent of pre-war levels, but refined-product exports stand at only 40 percent, Goldman analysts Yulia Zhestkova Grigsby and Daan Struyven wrote in an Aug. 28 report. "For refineries to fully resume operations, the global geopolitical situation must cool down," they said.

Shell Chief Executive Officer Wael Sawan described a "triple threat" to refined-product markets from attacks on Russian refineries, Persian Gulf shipping risks and the Red Sea shipping crisis. TotalEnergies CEO Patrick Pouyanne said no refined products are currently moving through the Strait of Hormuz, which carried about a fifth of global oil supplies before the war erupted in late February. Iran shut the waterway after the US and Israel attacked the country Feb. 28; visible commodity-vessel transits have dropped to five a day, Kpler data shows, and the UK Maritime Trade Operations agency reported a tanker struck by three projectiles while sailing out of the strait.

Russia's extension of its diesel export ban through September compounds the squeeze, as does recovering demand from Brazil, the world's second-largest diesel importer, and rising heating-oil demand ahead of the Northern Hemisphere winter. European diesel futures have more than doubled this year, outpacing the roughly 50 percent gain in Brent.

Inflation and politics collide

The diesel surge lands at the center of a policy bind. Higher fuel costs push into transportation, agriculture and broader goods prices, threatening to stall the disinflation the Fed has sought. Warsh's insistence that work remains toward the 2 percent target keeps the door open to further tightening even as the White House, facing midterm elections in November, confronts voter anger over living costs.

The last time US diesel approached these levels, in mid-2022, headline inflation ran above 8 percent and the Fed was mid-cycle in its fastest tightening campaign in decades. The current spike is narrower — crude sits near $91, well below the 2022 peak — but the refined-product squeeze means the pass-through to consumers may prove stickier this time, a dynamic that could keep rate expectations elevated into year-end. Washington has few levers: Trump's deal with Venezuela to control oil reserves, announced Friday, would help replenish the Strategic Petroleum Reserve, which fell about 3.1 million barrels last week to 286.6 million barrels, near a 44-year low — but it does little to ease the immediate diesel crunch.

This article is for informational purposes only and does not constitute investment advice.