US diesel hits record $6.53 as G7 declines export curbs
The mismatch between crude and refined product flows is showing up in American fuel prices. The national average for a gallon of diesel hit a record $6.53 late last month, and in California — where supplies are increasingly tight and fuel taxes are higher — diesel reached a historic high of $8.44 a gallon, The Wall Street Journal reported. President Trump’s team has explored a long list of options to address the high price of diesel fuel, which factors into the cost of groceries, gadgets and just about everything else moved on semitruck beds, the Journal reported.
“Consumers don’t buy crude oil. They buy gasoline, jet fuel and diesel,” said Andy Lipow, president of Lipow Oil Associates in Houston. “As a result of missile and drone strikes in the Middle East, several large refineries have been damaged. The world finds itself short of refined products.”
The primary reason diesel and other refined products aren’t making it out of the Middle East is that refineries across the region — in Saudi Arabia, Kuwait, the United Arab Emirates, Iraq and elsewhere — are down following missile strikes and other outages stemming from the war, the Journal reported. In roughly a month, most of the unrefined crude that is making its way through the strait will arrive in Asia, where countries need oil but are exporting little in the way of ready-to-burn fuel like diesel. China, Japan and South Korea are keeping most of their products at home.
On Friday, the Group of Seven major economies agreed to release 100 million barrels of crude oil and fuel from their emergency stocks. They declined to restrict exports of diesel and other petroleum products — an option Trump had said he was considering as a way to keep more fuel in the U.S., the Journal reported.
The recovery in oil flows out of the Strait of Hormuz won’t fix the problem anytime soon. Analysts say a full recovery, if current flows can be sustained, wouldn’t happen until well into 2027, and it will take time for countries to repair oil fields and refineries and for the market to replace the hundreds of millions of oil barrels lost to the war. That leaves the U.S. with limited spare supply in a world running low on fuel, the Journal reported.
In recent days, Iran has launched a new wave of attacks on vessels around the strait, which could slow the recent rebound in shipments, the Journal reported. Although it can take a few days for Kpler’s data to catch up with present-day flows, the data so far show tankers are still making their way through the waterway in high volumes.
American oil executives have advocated that the U.S. Navy make it a higher priority to escort tankers carrying petroleum products such as diesel, rather than those carrying crude oil, which is fetching about half the price of diesel, people close to the industry said. Most of the vessels the U.S. has escorted through the strait thus far have been VLCCs, or Very Large Crude Carriers, that can transport about 2 million barrels of crude — double the capacity of the largest class of tankers that carry fuel products.
Saudi Arabia’s crude exports are surging, said Matt Smith, an analyst at Kpler. The kingdom’s oil exports in September came to 7 million barrels a day, double August’s haul, as the country loaded tankers in both the Persian Gulf and the Red Sea, Kpler data show. “Either Saudi has made the decision that the risk is worth the reward, or they are trying to make hay while the sun shines, and some kind of escalation causes them to pull back again,” Smith said.