Diesel Prices Soar Despite Falling Crude Oil Costs

The national average diesel price in the US is over $6.50 per gallon, according to AAA, which is a nominal record. California's average price exceeds $8.40, and some stations are even displaying prices as high as $9.99.

This has led to claims that refiners must be gouging consumers because crude oil was more expensive after Russia invaded Ukraine in 2022 than it is today. However, this comparison overlooks the critical role of refining in the market.

The refining system between the wellhead and fuel pump is where the pressure lies, not with crude prices. The diesel crack spread, which measures the difference between the market value of diesel and the crude oil used to produce it, has recently reached a record high of over $100 per barrel in the US.

This means refiners can earn much more money when operating reliably, but it also indicates that the market value of diesel has risen far faster than the value of crude due to tight refined-product supply. Several disruptions have hit diesel supply simultaneously, including Ukrainian drone attacks on major Russian refineries and reduced fuel exports from Russia.