Iran War Drives Oil Prices Higher, US Faces Diesel Supply Crisis

Diesel refining profit margins surged to record highs, with the Iran war intensifying global fuel supply tightness, raising concerns that rising diesel costs could ripple through trucking, agriculture, and the US economy.

Diesel Crack Spread Hits $100/Barrel

According to Bloomberg, the diesel crack spread surged to $102/barrel on Monday, easing to around $100/barrel on Tuesday. The report noted that before this week's spike, the crack spread had never exceeded $89/barrel.

Per the Wall Street Journal, strong US diesel exports have further exacerbated domestic supply tightness. Diesel is critical to the global economy, with widespread applications in transportation, energy, and other sectors.

Citing analysts at Bank of America, the Wall Street Journal reported that exports are "drawing down already tight US inventories," and global "fuel competition" is pushing diesel crack spreads "back to record seasonal highs."

Trucks used to transport goods primarily run on diesel, and as winter approaches with falling temperatures, diesel is also vital for heating demand. With the autumn harvest season nearing, diesel is indispensable for running agricultural equipment such as tractors. Rising diesel prices could lift agricultural and transportation costs, potentially intensifying food price pressures.

Midterm Election Headache?

The Financial Times reported Tuesday that surging diesel prices could also impact the upcoming November midterm elections. Recent polls conducted by the newspaper showed that over 50% of US voters disapprove of President Trump and his policies, citing high grocery and fuel costs among the reasons.

According to AAA data, the national average diesel price on Wednesday was $5.5042/gallon, up from Tuesday's average of $5.4677/gallon. In California, the average diesel price broke above $7, reaching $7.0066/gallon.

Energy Secretary Promotes Oil Output Increase

As prices surge, Trump's Energy Secretary Chris Wright is touting surging oil production in Texas as a means to offset supply shortages and high fuel costs driven by factors including the closure of the Strait of Hormuz and the Russia-Ukraine conflict.

Wright also blamed former President Biden-era clean energy laws for US high fuel costs as much as the Iran war. Meanwhile, Trump recently rejected extending the ceasefire after the 60-day truce period under the Memorandum of Understanding expired.

However, when the president recently staked a sovereignty claim over the Strait of Hormuz, Iran's Supreme National Security Council secretary Mohsen Rezaee pushed back, stating the strait is not under US control.