Key facts
- Diesel prices have reached record nominal highs despite crude oil prices being lower than during previous crises.
- The global refining system is experiencing a shortage of available diesel relative to demand.
- The diesel crack spread, a measure of refining margins, has reached record highs.
- Disruptions to Russian refineries due to Ukrainian drone attacks and conflict in the Middle East have significantly impacted diesel supply.
- U.S. operable refining capacity has decreased since its 2020 peak, reducing market cushion.
- High refining profits do not by themselves demonstrate price gouging, as high prices also incentivize increased production.
Diesel prices have surged to record nominal levels, prompting questions about whether refiners are engaging in price gouging. While crude oil prices are lower than they were in 2022, the national average diesel price reached approximately $6.50 a gallon as of September 20, with California exceeding $8.40. This price increase is primarily driven by a global shortage in refining capacity and disruptions to diesel supply, rather than a direct correlation with crude oil costs.
The diesel crack spread, which reflects the difference between the value of diesel and the crude oil used to produce it, has reached unprecedented highs, briefly topping $100 per barrel in the U.S. in mid-August and exceeding $87 per barrel in Asia recently. These elevated spreads indicate that refined product supply is unusually tight relative to crude oil. However, high crack spreads do not automatically equate to price gouging; they are a market signal that can also incentivize refiners to increase production.
Several factors have contributed to the tight diesel supply. Ukrainian drone attacks have reduced output from Russian refineries, a major global diesel exporter. Conflict in the Middle East has damaged refining infrastructure and constrained shipping through the Strait of Hormuz. These geopolitical events, combined with a reduction in U.S. refining capacity since 2020, have created a market with little spare capacity to absorb shocks. Despite closures, U.S. refineries are operating at very high utilization rates, near 98% capacity, and gross inputs remain strong, suggesting refiners are producing as much as possible.