Refinery Attacks Deepen Global Diesel Supply Crunch

Diesel prices have skyrocketed due to ongoing attacks on refineries in Ukraine and Saudi Arabia, causing a global fuel supply crunch. Global fuel demand is already out of balance, and the persistent refinery disruption will exacerbate the issue before peak demand season. Refining margins in Europe have surged by 10%, the sharpest rise since July in the United States, reaching $4.19 per gallon.

The average retail price for a gallon of diesel is currently $5.32, up from $4.88 last month and $3.71 a year ago. Diesel is a crucial component of any economy, powering freight transportation, farming, and heating during winter. If diesel prices remain consistently high for an extended period, they will eventually be passed on to consumers, fueling inflation.

Refineries are operating at near-capacity, but there is limited flexibility for increased production. Refinery utilization rates have reached 95% to 100%, indicating little room for expansion. As refineries enter maintenance season, some output will be temporarily lost, potentially driving fuel prices even higher. Europe faces a refinery shortage due to years of closure as countries push for electrification, leaving demand for hydrocarbon fuels high but domestic supply low.

Russia's ban on diesel fuel exports, which is not set to lift until 2027, and China's continued export curbs have further strained the global fuel supply. While the U.S., the world's largest oil and fuel exporter, has some leeway to boost exports, it has limited space for additional fuel shipments. The U.S. Energy Information Administration predicts that Middle Eastern oil production will remain offline until late 2027, indicating a prolonged supply squeeze for both crude oil and fuels.