Diesel Prices Hit Record Highs with Structural Backing
Diesel prices have reached their highest levels in five years, driven by refinery outages and geopolitical disruptions.
Ultra-low sulfur diesel futures have settled at what is effectively their highest price on record, surpassing the 2008 spike. FreightWaves editor-at-large John Kingston stated this surge has structural backing that could sustain elevated prices for months, unlike previous short-lived spikes.
According to FreightWaves SONAR data, the heating oil spot price at New York Harbor hit $4.72 per gallon, a five-year high. Kingston noted the only settlement above that was a single anomalous day in late April when the expiring May contract spiked above $5 before collapsing, a short-covering event with no real-world supply impact.
Supply Disruptions from Geopolitics
The core supply problem stems from the combined loss of refining capacity. Ukrainian drone strikes on Russian facilities have taken over 1 million barrels a day of capacity offline. Kingston explained that Russian refineries were specifically oriented toward diesel production. Meanwhile, ongoing disruption at the Strait of Hormuz further tightens the market, with tanker tracking firms disputing optimistic U.S. government estimates of oil flows.
Economic and Carrier Impact
A sustained diesel shock carries broad economic consequences. Kingston cited a phrase from Jeffrey Currie, former head of commodities at Goldman Sachs: "All commodities are dirt with diesel." This highlights that the fuel is essential for producing and moving nearly all goods. Kingston argued the cumulative cost to the economy over six months starting March 1 will likely exceed the toll from the 2008 and 2022 spikes combined.
For carriers, the pain is uneven. Truckload carriers can push most fuel costs to shippers via fuel surcharges. However, empty and backhaul miles, often 12% to 13% of total miles for truckload fleets, carry no surcharge recovery. Kingston predicted some carriers will begin disclosing fuel-related earnings pressure this quarter.
Regional Price and Inventory Disparities
Regional fuel prices and inventories show significant disparities. The East Coast and Northeast are particularly exposed, with weekly inventory data showing stocks at levels Kingston described as almost unimaginable a short time ago. Prices also vary widely across the country.
| Region | Approximate Diesel Price (per gallon) | Key Notes |
|---|---|---|
| California | $7.00 | High due to taxes and clean-fuel mandates like the Low Carbon Fuel Standard. |
| Lower Atlantic | $5.43 | |
| New York Harbor (Spot) | $4.72 | Benchmark middle-distillate contract, a five-year high. |
Kingston noted the percentage increase in California has not materially outpaced the rest of the country; the state's baseline was already higher. On the crack spread between diesel and crude, he said a 100% spread is territory no one in the market can recall ever seeing. He stated this higher market has legs. You can imagine it running for months because you're still not at normal supplies - and on top of that, down the road, you're going to have to rebuild inventories.
