Reduced Russian Refining Helps Push U.S. Diesel to Record $6.29

Reduced refining activity in Russia formed part of a wider supply squeeze that helped lift U.S. diesel prices to a record, according to the U.S. Energy Information Administration. The agency also identified lower refining activity in China and the Middle East, making the shortage a multi-region problem rather than the result of a single disruption.

U.S. retail diesel averaged $6.29 per gallon on September 14, the highest nominal price in an EIA series dating to 1994. Reduced production abroad raised international prices and demand for U.S. diesel exports, transmitting the global shortage into the domestic market. U.S. distillate inventories were 15.8 million barrels, or 13%, below their five-year seasonal average for the week ending September 11.

The apparent contradiction is that U.S. refiners were already producing more distillate and operating close to their practical limit. Domestic distillate output averaged 5.1 million barrels per day from January through August, the highest level since 2019, while refinery utilization reached 97% in the week ending September 11. High production therefore did not translate into a comfortable domestic reserve.

Global demand reached into U.S. inventories

The connection is the international market for refined fuel. When diesel production falls in other regions, overseas buyers bid more aggressively for available supplies. That raises the cost of importing diesel into the United States while making exports from U.S. refineries more valuable. American distillate net exports remained near or above their previous five-year high from February onward, and inventories declined as exports increased, particularly in March and April.

Those inventories normally build during summer, creating a buffer for refinery maintenance, agricultural demand and winter heating. Instead, they remained relatively flat. A thinner buffer does not itself identify the cause of any future price movement, but it leaves less stored fuel available to absorb continuing export demand or routine changes in refinery operations.

The price mechanism extends beyond crude oil. Retail diesel includes crude costs, refining margins, distribution expenses, retail margins and taxes. When finished diesel becomes scarce relative to crude, the difference between the wholesale diesel price and the underlying crude cost the refining margin widens. That is why plentiful crude production cannot by itself resolve a shortage occurring at the refining and inventory stages of the system.

The International Energy Agency’s October oil-market assessment found that global diesel exports in September were 700,000 barrels per day lower than a year earlier. A combined 1.3-million-barrel per day loss from Russia and the Middle East was only partly offset by increased supply elsewhere. The agency expects constrained middle-distillate supplies to persist well into 2027, even if refinery output recovers enough to create a near-term surplus, because depleted inventories still must be rebuilt.

Scarce refinery flexibility is producing uneven gains

Refinery operators with available capacity and the ability to adjust their product mix have benefited from the widened price spread. TotalEnergies reported that refining and chemicals income more than quadrupled to $1.8 billion between April and June. Shell forecast a refining margin of $42 per barrel for July through September, up from $24 in the second quarter. U.S. fuel-product exports also rose from about 1.25 million to a record 1.9 million barrels per day over the previous year.

Those gains are not uniform. A refinery’s economics depend on its crude supply, configuration, shipping costs and product output. Northwest European refinery margins reportedly moved from $54 per barrel in early September to as low as negative $11 as crude and tanker costs rose. A plant producing lower-margin gasoline or naphtha can therefore face very different economics from one configured to maximize diesel or jet fuel.

Nor can operators change output without limits or consequences. BP said its refineries increased European jet-fuel production by 30% in May and later shifted back toward diesel. That flexibility is valuable, but gasoline, diesel and jet fuel emerge from the same interconnected processing system. The IEA said greater diesel production could create a diesel surplus by early next year while reducing gasoline output enough to make gasoline the next constrained fuel.

That tradeoff defines the operating tension ahead: high diesel prices reward refiners for maximizing distillate, but the same response can tighten gasoline availability. With U.S. plants already running near maximum utilization, relief depends less on simply processing more crude than on restoring overseas refinery output and rebuilding the inventories that normally cushion consumers from global supply disruptions.

By Thomas Caldwell — AMI’s senior editor for mechanical and mobility engineering, covering vehicle electronics, systems integration, electrification, chassis systems, propulsion, and safety policy.