Refining, Not Crude, Is Setting the Price of Fuel

The Energy Department’s statistics arm sharply raised its forecast for US diesel prices next year, as tight global supplies keep domestic inventories unusually low⁵. The outlook lifted the 2027 diesel projection by 33 cents and now expects retail diesel to average $4.40 a gallon that year⁵. US diesel prices hit all-time highs this month, the result of the Middle East conflict thwarting oil and petroleum product supplies and of Ukraine’s drone campaign against Russian refineries⁵.

The capacity loss is the common thread. Conflict in the Middle East and Ukrainian strikes on Russian refineries have taken a substantial amount of processing capacity out of the market⁶. Energy Secretary Chris Wright warned that closing US refineries drives up gasoline prices^3,4, and said blocking Iranian oil exports strangles Iran’s economy and cuts off its hard currency⁴.

Why it matters to investors

The distinction between crude and product changes what a price forecast is worth. Wright told Bloomberg that just under 11 million barrels a day of crude and oil products are still moving through Hormuz^1,2. Brent held near $101 as Iran said it was ready for an intense war², and equities took the hit: the Dow fell 400 points as oil jumped above $100 for the first time since July⁹.

Consumers are already paying the product price rather than the barrel price. In the United Kingdom a litre of unleaded now costs 167.17p, the biggest weekly increase since April⁷. Not every product market is tightening: the marine fuel supply squeeze has eased as shipping markets adapt to the prolonged Hormuz disruption⁸.

What to watch

The first marker is inventories, since the forecast revision rests on domestic stocks being unusually low rather than on a specific crude path⁵. The second is processing capacity, which is where the Middle East conflict and the Russian refinery strikes overlap⁶.

The third is the political clock. President Trump acknowledged that oil prices may not fall until after November’s midterm elections⁵, while the energy secretary has warned Washington may not be able to reach a nuclear agreement with Tehran⁹. Those two statements set the horizon the $4.40 diesel forecast is built against⁵. For anyone modelling headline inflation, the useful discipline is to track refined product prices and refinery runs separately from the crude benchmark, because this cycle has separated them^3,6.