Diesel Futures Hit $4.68/Gallon, New Post-War High

Why did diesel futures jump 18 cents in one day?

Diesel futures on the CME commodity exchange settled Tuesday at $4.6773 per gallon, up 18.36 cents from Monday and 4.09% higher. That's the highest settlement since the Iran war began and the second-highest in the contract's history. The only higher settlement was $5.1354/gallon on April 28, 2022, driven by a short squeeze as the May 2022 contract expired (the price dropped more than $1/gallon the next day, confirming the spike was technical, not fundamental).

The previous post-war high was $4.6084/gallon on March 20. Tuesday's settlement is effectively the highest "explanation-free" diesel price on record.

No single piece of news drove the climb. The surge reflects a combination of factors: loss of Middle East crude supplies with refining characteristics that yield high diesel output, Ukrainian attacks on Russian refineries and export facilities (which disproportionately affect diesel), and tight global inventories heading into winter, when diesel and structurally similar heating oil see seasonal demand spikes.

What does this mean for retail diesel and fuel surcharges?

Retail diesel prices lag futures by several days. The Department of Energy/Energy Information Administration weekly average fell 5.3 cents to $5.5999/gallon effective Monday, only the second decline in eight weeks. That drop reflects futures prices from late August, before this week's surge.

The recent futures rally has already erased the decline that produced this week's DOE/EIA number. On August 21, CME diesel settled at $4.4948/gallon. Prices fell sharply the next two days on optimism for easing tensions in the Strait of Hormuz, but that proved to be another head fake. Prices climbed back to just under $4.50/gallon by Friday, then surged further Monday and Tuesday.

Most fuel surcharges use the DOE/EIA weekly average as their index. The lag between futures and retail means the 18-cent Tuesday jump will show up in surcharge calculations within the next one to two weeks, depending on how quickly retail stations reprice inventory.

AAA's daily retail diesel price was $5.6325/gallon Tuesday. The highest post-war AAA price was $5.689 on April 9. If futures hold near current levels, that record will likely fall within days.

How high could diesel go from here?

The highest post-war DOE/EIA weekly price was $5.562/gallon, set a week ago. With futures now 8 cents higher than the level that produced that retail price, and with no resolution in sight for the supply disruptions driving the rally (Middle East crude losses, Russian refinery attacks, low global inventories), retail diesel could push past $5.70/gallon in the next two weeks.

For a typical over-the-road truck running 120,000 miles per year at 6 mpg, every 10-cent increase in diesel adds $2,000 to annual fuel costs. The 18-cent Tuesday jump alone translates to $3,600 per truck per year if it sticks.

Fuel surcharges are designed to offset these swings, but they lag and rarely cover 100% of the increase. Small fleets without strong surcharge agreements or running spot freight will absorb part of the hit directly.

What's driving diesel higher than crude and gasoline?

Diesel futures have surged well above increases in gasoline and crude oil. The divergence stems from diesel-specific supply disruptions. Middle East crude grades lost to the war have refining characteristics that produce high diesel yields. Russian refineries and export terminals hit by Ukrainian strikes also have outsized diesel exposure. Global diesel inventories are tight heading into winter, when heating oil demand (chemically nearly identical to diesel) spikes in the Northern Hemisphere.

Gasoline demand is more elastic and less exposed to these specific disruptions. Crude oil prices reflect the broader supply picture, but diesel's refining and inventory dynamics have decoupled it from the crude benchmark.

The bill for a 10-truck fleet

A 10-truck fleet running 1.2 million miles per year at 6 mpg burns 200,000 gallons of diesel annually. At Tuesday's $4.68/gallon futures price (which will translate to roughly $5.70/gallon retail within two weeks), that's $1.14 million in annual fuel costs.

If diesel holds at this level through year-end, the fleet will spend $36,000 more on fuel than it would have at the August 21 low of $4.49/gallon futures ($5.40/gallon retail). That's $3,600 per truck, or $300 per truck per month, assuming no further price increases.

Fleets with fuel surcharge agreements pegged to the DOE/EIA weekly average will see those surcharges rise in the next one to two reporting cycles. Fleets running spot freight or operating under contracts with weak or no fuel surcharge clauses will eat the difference.