The price of diesel in the US surged to a record high this week of $6.31 per gallon.
Diesel is still relatively cheap in the US compared with most other nations. But the rise will still affect a significant portion of the economy as it fuels logistics, operations and transport.
The continued rise of the fuel's price poses a major headache for economies around the world. With the situation in the Middle East still highly tense, crude prices continue to feel the pinch, with diesel facing a most uncertain path forward.
"Global diesel markets are under immense pressure. The Iran and the Ukraine wars have resulted in cutting the supply from refineries in the Gulf and Russia, making the US the crucial supplier of distilled petroleum products," analysts at UK bank Barclays said.
"This, in turn, has drained US domestic stockpiles ... given diesel's critical role in agriculture and the transportation supply chain, it will eventually add to consumer price pressures."
Felt everywhere
Diesel powers lorries, trains, buses, boats and vehicles in farming, construction and the military. Diesel-powered generators are also critical back-up power sources at factories, hospitals and large buildings, as well as in remote areas.
Diesel is derived from crude oil. But unlike the benchmarks Brent and West Texas Intermediate, diesel does not have a global exchange price. Instead, its cost varies greatly by region, influenced by supply and demand trends, logistical costs and local taxes.
Conflicts add to these factors. The effective closure of the Strait of Hormuz, an ongoing flashpoint in the Iran war, attacks from Yemen's Houthi rebels on Saudi ships and infrastructure and the halt of exports from Russia amid its conflict with Ukraine are escalating supply concerns. The closure of the kingdom's East-West pipeline last week added to the pressure.
Supply disruptions, depleted inventories and increasingly high refining margins – the financial difference between the value of petroleum products sold by a refinery and the cost of raw crude used to produce them, which vary greatly depending on the components used – magnify a severe shortage of middle distillates, which is where diesel is classified.
Those factors have also caused diesel prices in the US and Europe to soar above $220 a barrel – about a 95 per cent leap from prewar levels, the International Energy Agency said. The price of diesel varies widely, with costs in oil-producing nations largely lower than in net energy importers.
Price increases vary in other areas but are still significant. In the Philippines, for instance, authorities are expected to announce a 9.50 peso ($0.15) increase in diesel prices, compared with a 5.50 peso increase for petrol, making filling up a vehicle to max capacity a substantial added cost.
US diesel is still cheap
Still, that places the South-East Asian nation in the bottom half of diesel prices globally at $1.363 per litre, according to data from industry tracker Global Petrol Prices as of this week. Twenty-four countries have prices below $1, including all Gulf countries, except the UAE, where it costs Dh4.30, or $1.17, up 13 per cent from August. Venezuela, Iran and Libya have the lowest cost at $0.004, $0.006 and $0.024, respectively.
At the other end of the spectrum, Hong Kong has the highest diesel price worldwide at $4.695 a litre – way ahead of second-placed Malawi, where it is $3.383. Sixteen out of the top 20 locations with the highest diesel prices are in Europe, including the UK, France, Germany and Italy.
The US, where the pain of higher diesel costs has already taken root – analysts warn of more if they remain elevated – is still in the middle of the pack with a per-litre equivalent of $1.66.
In China, where diesel costs $1.187 a litre, inventories of the fuel at state-owned suppliers fell to a 15-month low, prompting analysts to predict that Beijing may curb monthly exports to protect domestic supply – which would eliminate another key source of the commodity, especially for Asia.
But diesel has become "the bigger problem", said Ole Hansen, head of commodity strategy at Denmark's Saxo Bank. "The economic implications extend well beyond energy markets. Diesel is a critical input for road freight, agriculture, construction, mining and manufacturing, meaning sustained high prices eventually feed into transportation costs and consumer prices," he added.
Road ahead
The administration of US President Donald Trump has repeatedly said that high energy prices are a short-term pain, but the uncertainty over the Iran war's endgame casts a huge cloud over those promises.
The US Energy Information Administration this month raised its 2027 retail diesel price forecast by 8.2 per cent, referring to tight global distillate supplies and a domestic stash that continues to decline.
The Washington-based agency said in its short-term outlook that diesel would hit an average of $4.40 per gallon next year, which is a 33-cent jump from its previous prediction. For 2026, it updated its forecast by 4.4 per cent to $5.07 – before this week's spike.
"We forecast US distillate fuel oil inventories will drop below 100 million barrels in September and will remain below the five-year [2021–2025] low through much of 2027," the EIA said. "Tightness in the global distillate market has raised domestic prices and incentivised US exporters to increase distillate exports. We assume global production of distillate fuel will remain below last year’s levels in the coming months, contributing to low US diesel inventories and high diesel prices."
The International Energy Agency, meanwhile, said a partial offset for the diesel squeeze comes from other regions – amid disruptions in the Middle East and Russia – and inventories have so far played a "crucial role" in balancing the market.
"Gasoil and diesel exports from both the Middle East and Russia have been squeezed by the wars," said Ipek Ozkardeskaya, a senior analyst at Swissquote. "With no end in sight, supply constraints will become a growing headache, especially as global oil inventories and strategic reserves have been falling. In other words, the clock is ticking louder."
