US diesel prices hit record high as global supply crunch squeezes inventories

US retail diesel prices have climbed to a record high as tight global supplies, elevated crude oil costs and dwindling domestic inventories put pressure on fuel markets, with the US Energy Information Administration (EIA) warning that the supply squeeze is likely to persist.

The average US retail diesel price reached $6.29 per gallon in the week ending September 14, the highest nominal level since the EIA began publishing the series in 1994. Adjusted for inflation, prices are at their highest since 2022. The surge comes despite US refineries operating at close to maximum capacity and domestic distillate production reaching its highest level in several years. The bigger problem, according to the EIA, lies in a global shortage of distillate fuels, which include diesel and heating oil.

Global supplies tighten

Distillate supplies have been constrained by lower refinery activity in Russia, China and the Middle East, pushing international prices higher and increasing demand for US-produced fuel.

The disruption to petroleum flows from the Middle East has been particularly significant. Restrictions and uncertainty surrounding shipping through the Strait of Hormuz have affected supplies of both crude oil and refined petroleum products. The EIA expects global distillate production to remain below 2025 levels in the coming months. That is likely to keep international prices elevated and encourage US refiners and traders to continue exporting large volumes.

US distillate and jet fuel exports had already climbed to record levels during the second quarter as international buyers searched for alternatives to disrupted Middle Eastern supplies.

US refineries running hard

American refiners have responded to strong demand by increasing production. US distillate output averaged about 5.1 million barrels per day between January and August, its highest level since 2019. Refinery utilisation reached 97 per cent in the week ending September 11, leaving relatively limited scope for plants to sharply increase output. But strong overseas demand has meant that higher domestic production has not translated into rebuilding US inventories.

Net exports of distillate have remained near or above the previous five-year high since February, contributing to a steady drawdown in stocks. US distillate inventories in the week ending September 11 were 15.8 million barrels, or 13 per cent, below the five-year seasonal average.

Stocks could fall further

The EIA expects US distillate inventories to fall below 100 million barrels in September and remain below the five-year low through the end of 2026 and much of 2027. The situation could become more challenging as the US enters autumn and winter. Refinery maintenance typically reduces distillate production during the fall, while agricultural demand rises during the harvest season. Winter also increases demand for heating oil, particularly in the northeastern United States.

Low inventories have contributed to unusually high refining margins. The EIA estimates average US diesel crack spreads will exceed $2 per gallon from August through November before gradually declining through the middle of 2027.

Relief depends on supply recovery

The EIA expects some pressure to ease if tanker traffic through the Strait of Hormuz normalises and refiners in Saudi Arabia and Kuwait are able to increase exports. Improved availability of Middle Eastern crude could also allow Asian refiners to raise production, adding more diesel and other distillates to international markets.

However, if Middle Eastern petroleum flows remain constrained beyond the end of 2026, global distillate prices and refining margins could remain higher than currently forecast.

For American consumers and businesses, the immediate outlook therefore remains difficult: US refineries are producing large quantities of diesel, but strong exports and constrained global supplies are keeping domestic stocks unusually low and pump prices elevated.