The global energy market is moving from an oil-price problem toward a broader fuel-supply problem, with diesel at a U.S. record, refineries running near their limits and some of the emergency buffers that softened earlier disruptions now substantially depleted.
The national average for diesel reached $6.23 a gallon Monday, up nearly 69% from $3.69 a year ago and the highest level AAA has recorded. Regular gasoline averaged $4.32, up from $3.18 a year earlier.
The tightening follows months of disruptions across several parts of the energy system. Reduced flows through the Strait of Hormuz, lower Russian refining output, restrictions on fuel exports and attacks on Middle Eastern infrastructure have removed crude oil and refined products from the market at the same time inventories have been falling.
The latest shock came from the shutdown of Saudi Arabia’s East-West pipeline, a route designed to move crude from the Persian Gulf to the Red Sea while bypassing Hormuz. Analysts estimate that at least 2.5 million barrels a day have been stranded by the disruption, while AP reported the system had recently been carrying roughly 2.6 million to 4 million barrels per day.
Chevron Chief Executive Mike Wirth warned last week that many of the buffers that prevented a larger price spike earlier in the Iran conflict have already been used. Governments released strategic inventories and additional sanctioned barrels reached the market, but Wirth said those cushions had largely been exhausted and risks remained tilted toward higher prices in the coming months.
The U.S. Strategic Petroleum Reserve illustrates the decline. SPR inventories stood near 285 million barrels in early September, down from more than 415 million barrels in February — a reduction of roughly 31% in about six months.
Diesel Is Becoming the Bigger Problem
Crude oil above $100 is part of the pressure, but the shortage of refined products is increasingly driving the economics of the crisis.
U.S. distillate inventories, which include diesel and heating oil, are expected to fall below 100 million barrels in September and remain below their five-year range through the end of 2026 and much of 2027, according to the Energy Information Administration.
The International Energy Agency and industry executives have pointed to lost refining output in the Middle East and Russia as a key reason. Vitol and Phillips 66 executives recently estimated that roughly 4 million barrels per day of diesel supply from those regions had disappeared from the market.
That shortage has pushed diesel refining margins to extraordinary levels. Reuters reported that the diesel crack spread — a measure of the difference between the value of diesel and the crude needed to produce it — reached a record $112.17 a barrel last week.
High margins are encouraging U.S. refiners to run aggressively, but there is little spare capacity available.
Some U.S. refining regions have been operating near 98% utilization, leaving limited room to offset additional outages. Exxon Mobil’s 264,000-barrel-per-day Joliet refinery in Illinois shut Sunday after a power failure, temporarily removing a plant capable of producing roughly 11 million gallons of gasoline and diesel each day. Exxon expects operations to normalize by the end of the week.
One isolated refinery outage would normally have limited national significance. In a market already short of diesel, every disruption carries more weight.
The timing also becomes more difficult as U.S. refineries enter seasonal maintenance and diesel demand increases from agriculture, freight transportation and eventually winter heating.
Refiners Benefit, but the Broader Economy Pays
The supply squeeze has produced unusually favorable economics for companies that can keep refineries running.
Valero Energy, Marathon Petroleum and Phillips 66 have been major beneficiaries of record refining margins this year. Earlier in the summer, the commonly watched 3-2-1 crack spread reached a record $69.45, roughly triple its 2018-2025 average, as shortages increased the value of converting crude into gasoline and diesel.
The same conditions are painful elsewhere.
Diesel is embedded throughout the economy because trucks, construction equipment, agricultural machinery and parts of the industrial sector rely on it. Higher fuel costs can show up in freight rates, food production, manufacturing costs and eventually consumer prices.
That inflation channel is already affecting financial markets.
The 10-year Treasury yield briefly crossed 5% Monday for the first time since 2023 as investors reacted to higher energy prices and expectations that the Federal Reserve will raise interest rates this week. Record diesel prices have reinforced concerns that energy inflation could make it harder for the Fed to bring overall price growth back toward its 2% target.
The problem for policymakers is that higher interest rates cannot create diesel or reopen damaged pipelines. They can slow demand, but the current fuel squeeze is primarily being driven by constrained supply.
Washington Looks for More Supply
The Trump administration has argued that the disruption can be managed and has explored several ways to increase available fuel.
The White House is considering using the Defense Production Act and other measures to help expand or improve U.S. refining capacity, with discussions focused more on increasing output from existing facilities than building entirely new refineries. No final decision has been announced.
The administration has also pursued additional Venezuelan production.
Those measures may eventually increase supply, but neither offers immediate relief on the scale of the barrels lost from the Middle East and Russia. Expanding a refinery can take years, and higher crude production does not fully solve a shortage of facilities capable of turning crude into diesel, gasoline and jet fuel.
The Saudi pipeline shutdown adds another near-term risk. AP reported that repairs could take three to five weeks, removing one of the most important alternatives to Hormuz at a time when regional shipping routes are already constrained.
That puts the next few weeks squarely on inventories, refinery operations and Middle Eastern infrastructure.
If the Saudi route returns quickly, U.S. refineries continue operating near full capacity and disrupted international fuel exports begin recovering, some of the pressure on diesel could ease.
If outages expand while inventories continue falling, the market could enter winter with less fuel in storage, limited spare refining capacity and fewer strategic barrels available to absorb another disruption.
At that point, the biggest energy risk would no longer be whether crude stays above $100. It would be whether enough usable fuel can reach the businesses and consumers that need it.