The Diesel Enigma

Rising diesel prices have been a “silent killer” for Americans’ wallets — but they could get louder soon, as prices for the fuel continue to shatter records. Higher diesel prices were already pressuring prices for groceries, especially perishables, that are trucked to stores, such as fresh fruits and vegetables. But more diesel-related price increases on consumer goods could land just as people start thinking up their Thanksgiving menus.

Diesel prices have been breaking records since late last month. Wednesday’s average price was $6.52 a gallon, less than a penny under Tuesday’s new high, according to AAA. That’s up from $5.60 one month ago and $3.69 one year ago. Most Americans, most people for that matter, I included, have never heard the term “crack spread,” until just recently, when I did some research on why we are paying so much money for diesel.

Crack spread is the price difference between a barrel of crude oil, and the petroleum products – like gasoline and diesel, refined from it. It acts as a rough gauge of the gross profit margin an oil refinery makes by "cracking" crude oil into usable fuels. It is called this because it combines the "cracking" petroleum refining process with the "spread," or price difference between raw crude oil and its finished products.

Normal diesel crack spread is about $20-$30 a barrel. This means that, for you arithmetically challenged, pun intended, for every barrel of oil converted to gasoline or diesel, the profit is between $20 to $30 dollars per barrel.

Last week, the crack spread was over $111 dollars on the Gulf Coast and over $117 dollars in New York Harbor, roughly 4 times the normal. The crack spread can fall all at once. The problem is not the oil. The problem is the refineries already churning at maximum capacity, which raises the obvious question. Why is the world suddenly leaning on AMERICAN refineries? Glad you asked.

Well, there are two reasons. The first is the Iran conflict, which has been disrupting the flow of Gulf oil through the Strait of Hormuz since February. But, believe it or not, this is not the primary cause of the decrease of diesel supplies and rising costs. The real reason is Ukraine. The energy secretary said it pretty plainly earlier this month: “the diesel situation has been challenging because Russian refineries have suffered significant damage.”

Russia was one of the largest diesel exporters on the planet until Ukraine began attacking their refineries and when their refineries go off-line, the demand doesn’t vanish, it has to be satisfied by another source and that is the world’s number one exporter of diesel fuel. The United States. More on this later.

Here’s the part that nobody’s talking about and this is the one I want you to remember. Every Autumn, American refineries slow down. It’s called “turnaround” season. Summer driving is over so they throttle back and do maintenance. Last September you could watch it happen week by week. Utilization went from 94.9% to 93.3% to 93% to 91.4%. This September, it’s sitting at 96.8%!

American refiners are running 3 1/2 points hotter than this time last year, during the exact same weeks when they are supposed to be actually shut down for repairs, and preventive maintenance. My friends that’s not strength, that is “deferred maintenance” and maintenance you skip, is a bill that shows up later, usually at the worst possible moment, and usually as an unplanned outage, and diesel inventories are about 16 million barrels, or 13% below the five-year average for this time of year.

There’s one more thing that makes diesel different from gasoline and it’s the reason it will matter to people who don’t even own a diesel vehicle. When gasoline gets expensive, you have options. You combine your errands, you skip a trip, you car pool, you avoid driving during peak traffic times.

But diesel does not. A semi tractor-trailer truck hauling frozen food cannot carpool. A locomotive can’t skip a scheduled transport trip. A farmer has a narrow window to get the corn out of the field with his combine. There is absolutely no substitute fuel and no waiting for a better price. The operator pays whatever the sign says for diesel and passes it down the line. That is why diesel spike shows up in everything and a gasoline spike shows mostly up in your own wallet. Back to Ukraine.

The average price for diesel, as of this writing, is $6.53 a gallon and over $17.00 dollars per gallon in Europe. The #1 exporter of diesel in the world is the U.S. with Russia being #2. What I didn’t know until now is that the war in Ukraine, is the reason behind the skyrocketing price for diesel. The Ukrainians have been busy attacking Russian diesel refineries for the last 12 months, effectively forcing significant reductions in output or completely halting operations due to damage.

According to my findings, a Russian diesel refinery is hit every three days by drone strikes. Russia has roughly 32 major oil refineries in total, with 6 facilities producing about half of the country's total diesel output. All but 5 have been hit repeatedly since the war began, resulting in nearly 200 individual drone strikes on Russian refining infrastructure in 2026 alone.

The Ukrainians have hit almost all the major refineries in European Russia and the Urals, at least once. They have also damaged the country’s largest refinery located in Omsk (Siberia). The ongoing Ukrainian campaign targeting primary distillation and secondary processing units, have effectively knocked out roughly 45% of Russia's total refining capacity, driving throughput to multi-year lows and causing severe domestic fuel shortages.

Repairs to these facilities can’t keep up, so Russia has halted diesel exports for the remainder of the year. But diesel demand must be satisfied. So Europe and others have come to the world’s number 1 diesel exporter,  the United States, which is now providing approximately 57% of Europe’s diesel.

So, if we are the biggest producer and exporter of diesel, the obvious question being asked by Americans is this. Why can’t we keep more of the diesel we produce here to alleviate the cost of diesel and lower inflation? Great question.

Here’s the too convenient answer from the oil companies. If the United States reduces exporting diesel, more fuel will stay here and prices will fall. But more diesel in the United States, according to the oil industry, does not necessarily mean lower prices at the pump, especially when the United States is not facing a shortage of diesel.

They insist that surplus diesel would quickly fill the Gulf Coast storage tanks, forcing domestic refineries to cut total fuel production and ultimately raising prices for gasoline, jet fuel, and diesel here even more. I don’t buy it.

I understand that diesel is a globally traded commodity and that prices are set by worldwide supply and demand. I get it. But if there no shortage of diesel in the United States, so why are we paying these exorbitant prices? I will tell you.

What the oil companies are doing is exploiting the Iranian conflict and the war in Ukraine to raise prices thereby, making record profits in what is known as “crisis exploitation,” and in doing so, they are robbing the American people, increasing the cost of everything, and intentionally or not, helping the Democrats retake both houses of Congress in November.