Inflation spreads! U.S. diesel surpasses $5 per gallon, energy shock begins to affect the real economy

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This week, U.S. diesel prices broke through $5 per gallon, reaching their highest level since the outbreak of the Russia-Ukraine conflict. The volatility caused by attacks on Iran in the crude oil market is being transmitted to the broader real economy through diesel, the core fuel of industrial economics.

Unlike the slow decline in gasoline demand, U.S. diesel consumption is almost entirely driven by commercial use—truck transport, construction, and industrial production without exception. The rapid rise in prices is directly eroding countless companies’ profit margins. Diesel’s latest price surge has surpassed gasoline, indicating a highly concentrated supply-side pressure.

The root of the problem lies in the structural mismatch of crude oil quality. Though the U.S. is the world’s largest oil producer, domestic shale oil mainly consists of light crude, suitable for refining into gasoline; whereas heavy crude, necessary for producing diesel and other distillates, primarily comes from the Persian Gulf, Venezuela, and Canada.

According to a previously published article by WallstreetCN, Saudi Arabia has reduced crude oil output by about 2 million barrels per day, with cuts mainly targeting heavy and medium-heavy crude. Saudi oil transportation currently relies on overland pipelines rerouted to the Red Sea, but these pipelines are mainly used for light crude.

Heavy crude supply cut, diesel market revives 2022 crisis logic

The supply logic behind this round of diesel price surge closely resembles the situation after the 2022 Russia-Ukraine war broke out. At that time, Western sanctions reduced Russian heavy crude exports, and global refineries faced shortages of heavy feedstock; now, tensions in Iran have disrupted normal Persian Gulf oil flows, causing the market to face the same structural predicament once again.

Last year, the U.S. imported about 500,000 barrels of Middle Eastern oil daily. As this supply has basically been cut off, American refiners are competing to seek alternative sources at higher premiums.

Energy giant Phillips 66 said yesterday that the price discount of heavy crude relative to light crude has narrowed again—previously, the discount had widened because after former Venezuelan President Nicolás Maduro was arrested, Venezuelan oil flows to North America increased, temporarily supplementing some heavy crude supplies.

Low inventories and rising demand: diesel supply gap appeared before the crisis

In fact, even before the U.S. and Israel launched joint strikes on Iran, the U.S. diesel market was already tight. By 2026, U.S. diesel inventories are significantly below the ten-year average, and the U.S. government forecasts inventories will continue to decline in the next two years.

At the same time, U.S. diesel demand is still growing, which sharply contrasts with the slow decline in gasoline consumption. Because diesel users in the U.S. are almost all commercial customers, price increases offer almost no buffer; cost pressures will directly penetrate every link of the supply chain, ultimately passing onto end consumers in the form of higher prices.

The key variable in the current situation is when passage through the Strait of Hormuz will return to normal. According to Bloomberg, if tanker traffic does not improve soon, dissatisfaction from freight, construction, and manufacturing sectors will continue to rise.

For the market, the real risk is not oil price levels themselves, but whether diesel shortages can, via rising truck freight, building materials costs, and industrial product prices, turn this energy shock into broader inflationary pressure.

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