Diesel Prices Hit Record High on Refinery Outages

Ultra-low sulfur diesel futures settled at what analyst John Kingston calls effectively the highest price on record, surpassing the 2008 spike. The current surge is backed by structural supply issues that could keep prices elevated for months.

Heating oil spot prices 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 April when a contract spiked above $5 before collapsing, a short-covering event with no lasting supply impact.

Supply Disruptions Drive the Surge

The core problem is a loss of global refining capacity. Kingston said Ukrainian attacks on Russian refineries have taken over 1 million barrels a day of refining capacity offline. He explained that these facilities were specifically geared for distillate production. Disruptions at the Strait of Hormuz further tighten supply, with tanker tracking firms disputing optimistic U.S. Government flow estimates.

Seasonal refinery maintenance will add more pressure. Combined, these factors have pushed distillate-to-crude crack spreads to unprecedented levels. Kingston stated a 100% spread is territory no market participant can recall ever seeing.

Economic and Carrier Impact

A sustained distillate shock has broad economic consequences. Kingston cited a phrase from former Goldman Sachs commodities head Jeffrey Currie: All commodities are dirt with diesel. This means the fuel is essential for producing and transporting nearly all goods, from farm produce to mined ore.

For trucking carriers, the pain is uneven. Truckload carriers can pass most fuel costs to shippers via surcharges. However, empty and backhaul miles, which often account for 12% to 13% of total miles, carry no surcharge recovery. Kingston predicted some carriers will disclose fuel-related earnings pressure this quarter.

Regional inventory data reveals stark disparities. The U.S. Energy Information Administration's weekly data showed distillate stocks on the East Coast and Northeast at levels Kingston described as almost unimaginably low. Regional pump prices vary significantly.

Kingston noted California's percentage increase has not materially outpaced the nation; its higher baseline is due to state taxes and clean-fuel mandates like the Low Carbon Fuel Standard.

A Sustained Price Environment

Kingston argues this market has staying power. He said 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. He calculates that the cumulative cost to the economy from March 1 onward, based on total daily consumption multiplied by price over six months, will likely exceed the combined toll of the 2008 and 2022 price spikes.

The AAA daily diesel price remains roughly 12 to 13 cents below the record high set just after Russia's invasion of Ukraine.