Diesel still ripping higher than the rest of the barrel; here’s why

Diesel prices are rising at a much faster rate than crude oil and gasoline following the start of hostilities involving Iran. According to FreightWaves, ultra low sulfur diesel prices have surged 71.5% since late February, while international Brent crude increased by 26.4%. This widening gap has pushed the price difference between refined diesel and crude to record levels, with the fuel trading at nearly double the value of the raw oil.

Energy analysts point to several global disruptions for this imbalance. Ukrainian drone strikes have significantly damaged Russian refineries, which are specifically engineered for high diesel output. Consequently, Russian exports have dropped sharply, and the country has implemented temporary export bans. In the Middle East, military attacks have damaged or disabled multiple refineries, further tightening the global supply of heavy crudes that typically yield the most diesel.

Domestically, U.S. refineries are operating at nearly maximum capacity to capitalize on high profit margins, yet they face long-term challenges. Recent closures in Texas and California have reduced total refining capacity, while inventories for distillates remain well below seasonal norms. Former Goldman Sachs commodities head Jeffrey Currie noted on CNBC that "to everybody else on the planet Earth, what matters are the product prices," highlighting that consumers are feeling the pinch despite slower growth in crude costs.

Market experts suggest the situation is exacerbated by a lack of strategic product reserves compared to crude oil stockpiles. While crude markets received support from government reserve releases, refined products had no such buffer. As refineries struggle to keep up with global demand, the disconnect between raw oil and fuel costs is expected to persist, driven by these structural bottlenecks and ongoing geopolitical instability.