U.S. Diesel Prices Close In on April War Peak
A diesel-price shock may be approaching Western economies. That's because the industrial fuel sits at the epicenter of freight, agriculture, construction, and heavy industry; soaring prices ripple quickly through supply chains, raising transportation and construction costs, reigniting food inflation, weakening consumer sentiment, and intensifying margin pressure on small and medium-sized…
Diesel fuel price in the United States is nearing a peak observed during the April war, according to recent data. This fuel plays a crucial role in various industries, including freight, agriculture, construction, and heavy industry. A spike in diesel prices can quickly impact supply chains, leading to increased transportation and construction costs, which in turn can reignite food inflation, erode consumer confidence, and put pressure on small and medium-sized businesses.
On Monday, the nationwide average retail price for diesel hit $5.69 per gallon, just below its April high. The ongoing US-Iran conflict has escalated, disrupting the Strait of Hormuz and further exacerbating the situation. The US is currently utilizing the Oman shipping corridor. Meanwhile, attacks on Russian refineries by Ukraine are limiting fuel exports from a major supplier. These factors are straining the global refining complex, which had already been dealing with limited spare capacity.
Recently, President Trump convened a private meeting with top US refining executives, urging them to boost diesel and gasoline production. He also warned that diesel prices could reach $6 per gallon nationally, and gasoline prices could surpass $4 ahead of the November midterm elections. The NYMEX one-month heating-oil/crude spread surpassed $100 per barrel early Tuesday, surging to $108 overnight.
The pressure on fuel prices has intensified after President Trump downplayed hopes for a new deal with Iran. Brent crude oil prices have fallen from their overnight highs near $97. UBS analyst Justinus Steinhorst noted in a recent report that global refinery runs are 7 million barrels per day lower than last year and have averaged nearly 6 million barrels per day below seasonal norms since March.
Kelly Chen, a senior economist at DNB Carnegie, suggested that China, with its ample refining capacity, could provide some relief to the global market. However, Chen pointed out that China lacks economic or strategic motivation to help stabilize Western fuel markets.
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