Why Are Diesel Prices So High?

Retail diesel is hitting record nominal highs even though benchmark crude prices are well below their inflation-adjusted peaks from past oil crises. The key reason is that diesel is not the same as crude: crude oil is the raw input, while diesel is a manufactured product produced by refineries. When refining capacity or refined-product exports are constrained, diesel can become relatively scarce and fetch much higher prices than crude alone would imply. One measure that highlights the pressure is the diesel crack spread — the price difference between diesel and the crude used to make it. The crack spread surged, with the U.S. measure briefly exceeding $100 per barrel in mid-August and Asian margins rising above $87 per barrel versus roughly $22 before the recent Middle East disruptions, according to Reuters. Those elevated spreads indicate that diesel’s market value has increased far more quickly than crude’s, raising refinery earnings where plants are running reliably. Multiple simultaneous shocks have tightened diesel supply. Ukrainian drone strikes and related impacts have forced some major Russian refineries to cut output or shut units, and Russia has also limited certain fuel exports. The Middle East conflict has damaged refining and export infrastructure and constrained shipping through the Strait of Hormuz. Reuters estimates those disruptions tied to Russia and the Persian Gulf have removed about 1.6 million barrels per day of diesel and gasoil exports relative to earlier this year, a substantial loss for a market with limited spare capacity. U.S. refining capacity has also declined from its 2020 peak: operable capacity was nearly 19 million barrels per day at the start of 2020, and EIA figures show about 18.16 million barrels per day at the start of 2026 and around 18.03 million by June after additional closures. However, the data do not support a narrative of coordinated capacity removal to manufacture scarcity. Capacity movements reflect mixed causes — economics, conversions to renewable fuel production, storm damage, aging facilities, and regulatory factors — and refineries have in recent months been running at very high utilization rates to meet demand. Higher refining margins have translated into substantial profits for some companies — Marathon Petroleum, Valero, and Phillips 66 together reported $12.6 billion in second-quarter earnings, Reuters notes — but elevated profits alone do not prove price gouging. A large crack spread is a market signal that diesel is scarce relative to crude; it both raises the cost for consumers and provides an incentive for refiners to increase output where technically and economically feasible. Determining whether specific actions by refiners are anticompetitive would require evidence of deliberate withholding or coordination beyond the observed margin widening.