Record diesel prices may complicate Fed's September rate decision

Record U.S. diesel prices are emerging as the central economic consequence of the conflict-driven energy shock, even as crude oil inventories remain adequate and oil prices fluctuate with Middle East headlines. Diesel supplies have tightened because disrupted refining capacity and tanker traffic are pushing refiners to prioritize diesel, gasoline and jet fuel over marine fuel, while U.S. distillate inventories remain well below seasonal norms. The resulting diesel refining margin, or crack spread, has reached unprecedented levels, showing that the primary bottleneck is the capacity to convert crude into fuel rather than a shortage of crude itself. Fuel oil shortages are also worsening globally, particularly in Asia, where bunker stocks are below normal and prices have risen sharply. With diesel costing about $5.85 to $5.90 a gallon nationally and substantially more in California, higher transportation, farming and manufacturing costs could lift the upcoming U.S. inflation reading and complicate the Federal Reserve’s September rate decision.