The exploding cost of energy is most obviously being felt at the gasoline pumps for Americans as evidenced in this Visual Capitalist graphic where prices in some states are up over 60% in six months in the wake of the Iran war.

 

While Gasoline is the biggest visible causality of the war, the even bigger one as we shall see is Diesel prices at the pump. The thing is, diesel is more prevalent in use globally and factors into many things that will be seeing increased costs in 2027 like food (Wheat is up over 50% this year) and finished goods. Here then is Goldman’s take on the diesel disaster we are in the middle of right now.

Siphoning off the SPR to keep oil prices down has limited success of late. But there is no way to keep crack spreads down when refining capacity is maxed out and the economy needs diesel .

Diesel at the Center of a Global Refining Squeeze

Authored by GoldFix 

Diesel markets entered September under renewed pressure after further US-Iran strikes pushed Brent crude above $91 a barrel and US diesel crack spreads back toward $100. The move extends a refined-products shortage that has been building since spring, as disruptions across the Persian Gulf and Russia reduce the world’s ability to convert crude oil into diesel, gasoline and jet fuel.

In an Aug. 28 report titled “Higher Product Margins for Longer on Higher Outages and Lower Stocks,” Goldman analysts Yulia Zhestkova Grigsby, Filippo Cuscito and Daan Struyven argue that geopolitical disruptions have intensified an existing shortage of refining capacity. They expect product margins to remain elevated through 2027 as refinery outages restrict production, inventories decline and geopolitical uncertainty adds a security premium to prices.

Diesel Leads the Product Rally

Global refined-product prices remain nearly $50 higher than a year ago after doubling during the first two months of the US-Iran war. Diesel contributed more than 40% of the $40-per-barrel increase in average wholesale product prices since the end of February, making it the largest driver of the rally.

“Diesel remains at the epicenter of the rally.”

The supply losses are concentrated in regions that produce high volumes of diesel and jet fuel. Middle Eastern and Russian refineries have relatively high middle-distillate yields, while much of the disrupted crude supply involves heavier grades that are particularly suitable for diesel production. Seasonal demand should also favor diesel as gasoline consumption weakens after summer and heating demand strengthens into winter.

 

Refined-Product Supply Falls Faster Than Crude

The larger rise in product margins relative to crude reflects a sharper contraction in refined-product supply. Diesel and jet fuel margins are approximately three times their year-earlier levels, while dated Brent has risen 34%.

Global refined-product exports have declined by 6 million barrels a day, or 25%, from a year earlier, with the Persian Gulf and Russia responsible for three-quarters of the reduction. Although Gulf crude exports have recovered to an estimated 70% to 80% of prewar levels, the region’s product exports remain at only 40%. Russian refinery runs have also fallen following repeated strikes, contributing to restrictions on most Russian gasoline and diesel exports through February.

 

Outages Push Inventories Lower

Global refinery outages are running approximately 60% above seasonal norms. Disrupted crude deliveries to Asia and restrictions on Chinese product exports have further limited the supply response, even as high margins encourage operating refineries to raise production.